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of <h1>Understanding Financial Guarantees: Ind AS 32 & 109 on Liabilities, Fair Value, and Profit Impact</h1> A financial guarantee is a contractual obligation where the guarantor must pay the lender if the borrower defaults, recognized as a financial instrument under Ind AS 32. According to Ind AS 109, these guarantees are initially recognized as financial liabilities at fair value. If they qualify as insurance contracts, Ind AS 104 applies. Subsequent recognition involves measuring at fair value, with changes impacting the profit and loss account. On maturity, if the borrower defaults, specific journal entries are required to reflect the financial transactions, including adjustments to the bank account and profit and loss account.
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