CERTYNEX IFRS ACADEMY

The Cèdre fund issues units that the holder can put back to the fund for cash. The units belong to the most subordinated class of instruments, but the contract also obliges Cèdre to pay each year a fixed income of 3% of nominal value, independent of the fund's results (case facts). How does Cèdre classify these units?

As equity, because the units belong to the most subordinated class, which is enough to apply the puttable instruments exception.

As equity, because the holder's put option is the main obligation to deliver cash and the annual fixed income is an ancillary element, which is enough to set aside the condition of no other unfavourable obligation.

As a financial liability, because the puttable instruments exception requires all the cumulative conditions to be met, including the absence of any other unfavourable contractual obligation, and the mandatory fixed income is one.

As a financial liability, because an instrument that the holder can put back for cash cannot be classified as equity, whatever its other terms.