Equity Instruments - Ind AS - Indian Accounting Standards - Companies Law

Equity Instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. [Ex Entity s own equity shares] A contract to issue fixed number of own equity shares. Note:- If there is any statutory right to receive cash or statutory obligation to deliver cash, then it will not be classified as Financial Asset or Financial Liability [Ex- Income Tax Payable] If an entity issues preference shares or debentures or taken a loan then that preference share/debentures/loan need to classify as financial liability or equity instrument. Situation where Preference Shares, Debentures or Borrowing needs to classify as Financial Liability or Equity Instrument Preference Share/Debenture/Borrowings Redeemable At a specified date; At the option of the holder In this case, the company has no obligation to settle by delivering cash or any other financial asset. It is a Finance Liability At the option of the Issuer In this case, the company does not have a present obligation till the date it exercises the option i.e., decided to pay; Hence it should be classified as Equity . Irredeemable / Perpetual In this case, Principal amount is payable only at the time of liquidation of the company Such Instrument shall be treated as Equity . If Interest/Dividend is payable Mandatory Financial Liability Discretionary - Equity If such Instrument is convertible in Variable no. of Equity Shares of Entity Financial Liability Fixed no. Equity Shares of Entity If it is Compulsory convertible Equity If it is convertible at the option of Issuer(entity) - Equity or Holder then Compound Financial Instrument. If any entity has borrowing which has mix features of Financial Liability Equity Instrument, then it is known as Compound Financial Instruments