IAS 32Chapter 2Lesson 1
Liability or equity: the unavoidable contractual obligation
Step 1 of 6Learning objectives
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An instrument issued is a financial liability if the issuer has an unavoidable contractual obligation to deliver cash or another financial asset; it is an equity instrument if no such obligation exists, the right to avoid delivery having to be unconditional.
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Learning objectives
- Explain that an instrument issued is an equity instrument only if there is no unavoidable contractual obligation to deliver cash or another financial asset.
- Determine the classification of an instrument issued (liability or equity) from its contractual terms rather than its name.
- Explain why the absence of an unconditional right to avoid delivering cash leads to classification as a liability.
- Analyse whether a right to refuse redemption is unconditional and what it implies for classification.