Page 10 - 34.2 FR MARCH 22 MTP ANSWER

convertible debentures into debt and equity portion on the date of transition. Accordingly, we will first
measure the liability component by 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).
Rs.
Interest payments p.a. on each debenture 6
Present Value (PV) of interest payment for years 1 to 4 19.02
(6 X 3.17) (Note 1)

PV of principal repayment (including premium) 110 X 0.68 (Note 2) 74.80
Total liability component per debenture 93.82
Equity component per debenture (Balancing figure) 6.18
Face value of debentures 100.00
Total equity component for 30,000 debentures 1,85,400

Total debt amount (30,000 x 93.82) 28,14,600

Thus, on the date of initial recognition, the amount of Rs. 30,00,000 being the amount of debentures will be
split as under:
Debt Rs. 28,14,600

Equity Rs. 1,85,400
However, on the date of transition, unwinding of Rs. 28,14,600 will be done for two years as follows:

Therefore, on transition date, S Ltd. shall –

a. recognise the carrying amount of convertible debentures at Rs. 30,27,666;
b. recognise equity component of compound financial instrument of Rs. 1,85,400;
c. debit Rs. 63,066 to retained earnings being the difference between the previous GAAP amount of Rs.
31,50,000 and Rs. 30,27,666 and the equity component of compound financial instrument of Rs.
1,85,400; and
d. derecognise the debenture liability in previous GAAP of Rs. 31,50,000.

Notes:
1. 3.17 is present value of annuity factor of Rs. 1 at a discount rate of 10% for 4 years.
2. On maturity, Rs. 110 will be paid (Rs. 100 as principal payment + Rs. 10 as premium)

Solution 4

(a) Assessment of applicability of Ind AS 38 in the given scenario
As per Ind AS 38, to be an intangible asset the asset should meet following criteria:
 Identifiability;
 Control over a Resource (Asset); and

 Existence of Future Economic Benefits.
Crystal Systems Limited manages and controls the application software available on a cloud infrastructure
and New Age Technology Limited has limited rights to use the same. Merel y right to access the application
of Crystal Systems Limited, does not give New Age Technology Limited power to obtain future economic

benefits flowing from the software itself. Hence, the application software should not be recognised as an

34.16