After the introduction of IFRS (called IND-AS in Indian perspective) in India, now all instruments that are issued by an entity will not accounted just based on their legal form. E.g. Preference shares are being accounted as Equity in general in the current scenarios however after the introduction of IFRS it will be judged/ evaluated based on certain facts which can be analyzed in the purview of IND-AS 32 which says that the instrument will be treated as Equity only when the issuer has unconditional right to avoid payment (in cash or other financial instrument) or if it settled through own equity instruments for fixed amount of cash or fixed number of entity’s own equity shares. All other cases it will be treated as liability.
Like some of the very common kind of instances which we generally find attached within the contractual agreement of these instruments which are being issued by an entity-
This is just a glimpse of presentation of Financial Instruments which normally being shown as per its legal form and most of the cases we end up making it as Equity.
Hence there would be lot more careful consideration (to study entire arrangement of the Instrument before reaching to the conclusion either its Equity or Liability) would be required to carry out such presentation for financial Instruments because it may change entire structure of the Statement of Financial Position (called as Balance Sheet).
One has to look into all related facts and patterns before concluding this type of assessment based on this concept. Readers are requested not to take this article as any kind of advice (it is not exhaustive in nature) and should evaluate all relevant factors of each individual cases separately.
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