Derivative: a USD 2,00,000 equipment contract between two companies whose functional currency is INR
- Separate the embedded forward (given as not closely related)
- Journal entries in the seller's books
- From 1 Oct 2023 until the sale on 31 Mar 2024
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Exam patterns › Financial Reporting
Financial instruments: only three question types
Every FR paper under the new syllabus had a 10-mark financial instruments question in Q2(a), and each one was one of three types.
How to prepare: practise one full question of each type, and compound financial instruments twice: split, interest and early exit.
The three types
Ranked by how many exam questions ICAI set on each type in the same six papers, Q2(a) and everything else.
- 7 exam questions
Compound financial instruments (Ind AS 32)
Sep 25 Q2(a)May 26 Q2(a)May 24 Q3(b)MCQs May 25, Sep 25, Jan 26 ×2Watch for: On issue, the liability is the present value at the rate for similar debt without conversion; equity is the balance, and it is never remeasured. On an early repurchase, split the price the same way. A convertible is compound only if conversion passes fixed-for-fixed (May 2026 MCQ 5 did not).
- 6 exam questions
Amortised cost and the effective interest rate
May 25 Q2(a)Jan 26 Q2(a)Sep 25 Q4(b)MCQs Sep 25, Jan 26, May 26Watch for: Fees go into the effective rate. On a modification, apply the 10% test: a change of 10% or more in present value means a new loan (May 2025). An interest-free loan to a subsidiary goes in at fair value, and the difference is a capital contribution (Jan 2026).
- 3 exam questions
Derivatives
May 24 Q2(a)Nov 24 Q2(a)MCQ Sep 25Watch for: Test the definition: value changes with an underlying, little or no initial investment, settled later. A written option is a derivative even with nothing received upfront (Nov 2024). An embedded derivative is separated only when it is not closely related (given as an assumption in May 2024).
Free with an account: what to watch for in each type, and what each paper's Q2(a) required.
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Each Q2(a) and what ICAI required. The full questions are in ICAI's suggested answers.
Derivative: a written put option on USD 40,000 at ₹78, nothing received upfront
- Does it meet the Ind AS 109 definition of a derivative?
- Entries each quarter until the USD is bought
Amortised cost: a ₹5 crore loan at 11% (EIR 11.5%), restructured to 15% over 8 years after a missed instalment
- Journal entries from Apr 2023 to Mar 2026
- After giving effect to the new terms (ICAI's answer applies the 10% test)
Compound: 15,000 8% convertible debentures, conversion at ₹105, market rate 12%, repurchased by tender offer
- Entries on issue
- Interest expense for all five years
- Entries on repurchase
Amortised cost: a ₹25 lakh interest-free loan to a subsidiary, under three repayment options
- Treatment under each option, standalone and consolidated
- Journal entries for option 2
- What if the subsidiary lends to the parent?
Compound: 6% convertible debentures, 10 shares each at maturity, market rate 10%, with the holder's put at a 5% premium
- Liability and equity components? (Ind AS 32)
- Split on issue and the journal entry
- Entries when the holder takes early repayment
ICAI's Nov 2026 mock tests and RTP
Compound financial instruments came in three long questions (Series I Q2(a) and Q4(a), Series II Q2(a)) and two MCQs (Series II, 15 and 16). Amortised cost came in one long question (Series II Q3(b)) and two MCQs (Series I, 6 and 20). The RTP's Q14 is a bond at amortised cost, sold with an agreement to buy it back.
How to prepare
- Practise one full question of each type.
- Do compound financial instruments twice: split on issue, interest, and early repurchase or redemption.
- Know the 10% test for loan modifications, and how fees enter the effective rate.
- For derivatives, run the three-part definition, and know when an embedded derivative is separated.
Practise Ind AS 32 and 109 MCQs against the clock. FR MCQ 1 is free.
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Sources: ICAI suggested answers, CA Final Paper 1 Financial Reporting (May 2024 to May 2026), Q2(a) and the questions listed; ICAI Mock Test Papers Series I and II and Revision Test Paper for November 2026.
CA-MCQs is an independent platform and is not affiliated with or endorsed by ICAI. ICAI's questions are paraphrased; the full questions are in ICAI's suggested answers on its BoS Knowledge Portal.