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WorkpaperIAS 32 — Financial Instruments: PresentationL2 · L3 · L4

Classification of an issued instrument: financial liability, equity instrument or compound instrument

18 missions7 sections to document60 min
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Status
Published

Objective of the workpaper

Record the contractual terms of the instrument, the settlement clauses, the contingent events, the currency of the exercise price and, where relevant, the redemption rights of the holder. The classification rests on these terms, not on the intention of the parties or the name of the instrument; amounts and terms are case data and the classification remains a supported judgment.

7 sections · 15 blocks · 0 calculations · 0 entries

  • IAS 32 §25
  • IAS 32 §26
  • IAS 32 §16A
  • IAS 32 §16C

Work this workpaper as a mission

Each case that uses this template opens in the mission workspace: data, analysis, calculation, entries, conclusion and review, with your progress saved.

18 instances from the cases: the calculations and entries below are run by the calculation engine.

File and entity
Instruments issued: definition of a financial instrument, contractual obligation and right to avoid delivery
Case tasks documented here
  • Classify each instrument issued as a financial liability or an equity instrument.
  • Why does the right to avoid the delivery of cash separate the C shares from the B shares?
1

Facts and data

Inputs

  • Terms of the instrument: maturity, redemption, remuneration, rights of the holder

    TextRequired

    FIXED_DIVIDEND_DUE_EVERY_YEAR_AND_MANDATORY_REDEMPTION_AT_NOMINAL_ON_A_FIXED_DATE

  • Settlement clauses: cash, own shares (number and price) or choice by one party

    Text

    SETTLED_IN_CASH_ONLY

  • Contingent events: nature of the event and control by the parties

    Text

    NONE

  • Currency of the exercise price and functional currency of the issuer

    Text

    NO_EXERCISE_PRICE

  • Redemption right of the holder or obligation on liquidation: ranking, conditions, other obligations

    Text

    NO_RIGHT_OF_THE_HOLDER_TO_PUT_THE_SHARES

  • Amount issued (case data)

    Number

    500,000

2

Supporting documents

Evidence

  • Documents obtained and referenced (issue contract, articles, offering document, legal opinion)

    EvidenceRequired

3

Analysis of the financial liability or equity classification

Analysis

IAS 32 §25IAS 32 §26IAS 32 §16AIAS 32 §16CIAS 32IAS 32IAS 32

  • Points examined: classification

    ChecklistRequired

    • Contractual obligation to deliver cash or another financial asset that the issuer cannot avoid
    • Right of the issuer to avoid delivery: distribution or redemption at its sole discretion
    • Settlement in own shares: fixed number of shares for a fixed amount of cash
    • Contingent settlement clause: event outside the control of both the issuer and the holder
    • Choice by one party of the manner of settlement
    • Exercise price in a currency other than the functional currency
    • Instrument puttable by the holder or obligation on liquidation: conditions of the exception examined
    • Classification based on the contractual terms, not on the intention of the parties
4

Judgments: classification and conditions of puttable instruments

Judgment

IAS 32 §25IAS 32 §26IAS 32 §16AIAS 32 §16CIAS 32IAS 32IAS 32

  • Classification of the instrument

    JudgmentRequired

    Financial liability

    Financial liability / Equity instrument / Compound instrument / Derivative: financial asset or liability / Outside the scope of IAS 32

    Professional judgment: the classification is supported by the contractual terms taken together; the name of the instrument and the intention of the parties are not enough.

  • Rationale: contractual obligation, settlement in own shares, contingent clauses

    Text

    CONTRACTUAL_OBLIGATION_TO_PAY_THE_DIVIDEND_AND_TO_REDEEM_THAT_THE_ISSUER_CANNOT_AVOID

  • Exception for puttable instruments or obligations on liquidation

    JudgmentRequired

    Not applicable

    Conditions of the exception met / Conditions of the exception not met / Not applicable

    Professional judgment: the exception applies only if all the conditions are met; one missing condition brings back the general analysis.

  • Rationale: ranking, cumulative conditions and other obligations

    Text

5

Items to document for the disclosures on the instruments issued

Disclosure

IAS 32 §25

  • Information to prepare on the classification

    Checklist

    • Significant judgments that led to the classification
    • Terms of the instrument useful for the disclosures on risks and maturities
6

Conclusion

Conclusion

  • Classification retained (financial liability, equity or compound instrument), decisive clauses and conditions of the exceptions

    ConclusionRequired

7

Normative references

References

  • Normative references cited in this workpaper

    References

8

Checks and financial statement impact

  • Terms of the instrument describedPass
  • Classification judged and supportedPass
  • Exception for puttable instruments judged or ruled outPass
Assets
0
Liabilities
0
Profit or loss
0
OCI
0
Equity
0