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QUESTIONS FROM PAST EXAM PAPERS

Q11 (Nov. 18)

Growth Limited on 1st April, 2015 issued 50,000, 7% convertible debentures of face value of Rs100 per
debenture at par. The debentures are redeemable at a premium of 10% on 31st March, 2020 or these may be
converted into ordinary shares at the option of the holder. The interest rate for equivalent debentures without
conversion rights would have been 10%. The date of transition to Ind AS is 1st April, 2017.
Suggest how Growth Limited should account for this compound financial instrument on the date of transition.

Also discuss Ind AS on 'Financial Instrument' presentation in the above context.
The present value of Rs1 receivable at the end of each year based on discount rates of 7% and 10% can be
taken as:
End of Year 1 2 3 4 5
7% 0.94 0.87 0.82 0.76 0.71
10% 0.91 0.83 0.75 0.68 0.62
Solution

Since the liability is outstanding on the date of Ind AS transition, Growth Ltd. is required to split the
convertible debentures into debt and equity portion on the date of transition. Accordingly, first the liability

component will be measured discounting the contractually determined stream of future cash flows (interest
and principal) to present value by using the discount rate of 10% p.a. (being the market interest rate for
similar debentures with no conversion option)
Calculation of Equity & Liability component on initial recognition
(Rs)
Present Interest payments for 5 years on debentures by applying annuity factor [(50,000 x 7% x 100) x 13,26,500
3.79]
PV of principal repayment (including premium) (50,000x110x0.62) 34,10,000
Total liability component 47,36,500
Total equity component (Balancing figure) 2,63,500
Total proceeds from issue of Debentures 50,00,000
Thus, on the date of transition, the amount of Rs50,00,000 being the amount of debentures will split as

under:
Debt Rs 47,36,500
Equity Rs 2,63,500

Q12 (July 21)

Government of India provides loans to MSMEs at a below-market rate of interest to fund the set-up of a
new manufacturing facility. Sukshma Limited's date of transition to Ind AS is 1 April 2020.
st
In financial year 2014-2015, the Company had received a loan of Rs. 2.0 crore at a below - market rate of
interest from the government. Under Indian GAAP, the Company had accounted for the loan as equity and
st
the carrying amount was Rs. 2.0 crore at the date of transition. The amount repayable on 31 March 2024
will be Rs. 2.50 crore.

The Company has been advised to recognize the difference of Rs. 0.50 crores in equity by correspondingly
increasing the value of various assets under property, plant & equipment by an equivalent amount on

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