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Valuation of NCD's @ 11.5%_IndAS/IFRS

Kapil Sethia (Vice President) (22 Points)

17 February 2020

We have issued NCD's of Rs 10 Crs @ 11.5% for 12 months, with a put option every 3 months.

As per IndAS/ IFRS, how fair valuation of these NCD's is to be done. If the rate had scaled down to 11% after 3 months, what would be the impact on P&L a/c.

Kindly suggest , way out and overall impact for the same.

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2 Replies

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 19 June 2020

The fair value of FVTPL instruments is done annually as per reporting standards. People can revalue them for internal management decisions as well. This is investment part.

Now coming to your non convertible debentures, if the debenture holder exercised his option, it is a loss to him. If the bond holder is paid back without any premium, you will recognise a profit to the extent of

10cr*11/11.5 . If he does not exercise this option, then it will be redeemed by year end, but revalued the same way before recognising profit or loss if he uses it as held for trading instrument.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 19 June 2020

But, I believe you can understand, an instruments acts as a liability to one entity and the same is an asset to another. However, I’m not sure if how a liability is converted. Maybe

Bank 100000000

To debenture Liability 100000000

supposing it is revalued down to 9900000, then

By Debenture Liability 1,00,00,000

To Bank 99,00,000

To Profit on redemption 1,00,000

I think this is the way it should work out in the issuers books as gains and losses are recognised through FVTPL. But why would a company trade with debt instruments apart from banks for securitisation purposes? Do you have any other suggestions?