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

Puttable Instruments Puttable instrument is a financial instrument that gives the holder: the right to put the instrument back to the issuer for cash or another financial asset, or is automatically put back to the issuer on the occurrence of an uncertain future event or the death or retirement of the instrument holder. The phrase put back to the issuer refers to redemption of the instrument. If the holder has a right, but not an obligation to require the issuer to redeem the instrument, it is referred to as put option . If the following conditions are fulfilled then such financial instrument will be classified as Equity :- It entitles the holder to a pro rata share of the entity s net assets in the event of the entity s liquidation. The entity s net assets are those assets that remain after deducting all other claims on its assets. A pro rata share is determined by: dividing the net assets of the entity on liquidation into units of equal amount; and multiplying that amount by the number of the units held by the financial instrument holder. The instrument is in the class of instruments that is subordinate to all other classes of instruments. To be in such a class the instrument: has no priority over other claims to the assets of the entity on liquidation, and does not need to be converted into another instrument before it is in the class of instruments that is subordinate to all other classes of instruments. All financial instruments in the class of instruments that is subordinate to all other classes of instruments must have an identical contractual obligation for the issuing entity to deliver a pro rata share of its net assets on liquidation. In case of puttable instruments, apart from contractual obligation for the issuer to repurchase or redeem the instrument for cash or another financial asset, there are no other contractual obligations: to deliver cash or another financial asset, or to settle in variable number of entity s own equity instruments In case of puttable instruments, the total expected cash flows attributable to the instrument over the life of the instrument are based substantially on: profit or loss, change in the recognised net assets or change in the fair value of the recognised and unrecognised net assets of the entity over the life of the instrument. The issuer must have no other financial instrument or contract that has: total cash flows on same terms as (e) above, with the effect of substantially restricting or fixing the residual return to the puttable instrument holders.