On 1 st April, 2022, Gama Ltd. issued 1,00,000, 8% convertible, debentures of face value of 100 per debenture at par. The debentures are redeemable…

The carrying amount of the debenture on the date of transition under previous GAAP, assuming that all interest accrued other than premium on redemption have been paid, will be - 1,05,00,000 [(1,00,000 × 100) + (1,00,000 x 100 x 10/100 x 2/4)]. The premium payable on redemption is being recognised as borrowing costs as per para 4(b) of AS 16 i.e. under previous GAAP on straight-line basis. As per para D18 of Ind AS 101, Ind AS 32, Financial Instruments: Presentation, requires an entity to split a compound financial instrument at inception into separate liability and equity components. However, in accordance with Ind AS 101, a first-time adopter need not separate these two portions if the liability component is no longer outstanding at the date of transition to Ind AS. In the present case, since the liability is outstanding on the date of transition, Sigma Ltd. will need to split the convertible debentures into debt and equity portion on the date of transition. (₹ ) Interest payments p.a. on each debenture 8 Present Value (PV) of interest payment for years 1 to 4 (8 x 2.9138) 23.3104 PV of principal repayment (including premium) (110 x 0.5921) 65.1310 Total liability component per debenture 88.4414 Equity component per debenture (Balancing figure) 11.5586 Face value of debentures 100.0000 Total equity component for 1,00,000 debentures (1,00,000 x 11.5586) 11,55,860 Total debt amount (1,00,000 x 88.4414) 88,44,140 However, on the date of transition, unwinding of 88,44,140 will be done for two years as follows: Year Opening balance ₹ Finance cost @ 14% ₹ Interest paid ₹ Closing balance ₹ 1 88,44,140 12,38,180 8,00,000 92,82,320 2 92,82,320 12,99,525 8,00,000 97,81,845 Therefore, on transition date, Gama Ltd. shall a. Recognise the carrying amount of convertible debentures at - 97,81,845; b. Recognise equity component of compound financial instrument of 11,55,860; c. Debit - 4,37,705 to retained earnings being the difference between the previous GAAP amount of 1,05,00,000 and - 97,81,845 and the equity component of compound financial instrument of 11,55,860; and d. Derecognise the debenture liability in previous GAAP of 1,05,00,000.