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Editorial Board on Accounts and Audit
  • Financial Instruments

    by Chirag on Wednesday, August 29, 2018 at 07:49 PM

    Dear Sir, A company has taken CC/OD from a bank. CC limit is Rs.10 crores. Query- Whether this CC/OD has to be accounted for as per Ind-AS 32 , Financial Instruments- Financial Liability or as per AS of "Financial Instrument" - Financial Liability ?? 2) If yes to above, Pls tell HOW ACCOUNTING WILL BE DONE IN ABOVE CASE ?? 3) If No to point (1), Pls tell why accounting will not be done as per said AS/Ind-AS ?? Pls clarify . Heartiest Thanks ..

    Replied byEditorial Board Wednesday, September 05, 2018 at 05:10 PM

    CC/OD limit approved by a bank is not a liability in itself. However, if a company utilizes that limit then the same shall be considered as a financial liability under Ind AS 32, Financial Instruments- Presentation. The accounting treatment of a financial liability is given in Ind AS 109, Financial Instruments, which provides that a financial liability is measured initially at fair value. Fair value of a financial liability is normally the transaction price, unless its payment or repayment includes some additional consideration in which case fair value shall be determined as per Ind AS 113. Subsequently, at each balance sheet a financial liability should be measured at amortized cost.

    Therefore, in your case, whenever you will utilize the limit of CC/OD approved by the bank, should be recorded and measured as a financial liability in accordance with the above provisions of Ind AS 109 (if your company is an Ind AS compliant company).

    In case your company is required to comply with AS, then the CC limit as per books shall be the amount to be recognized as per the respective guidance under Accounting Standards.

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