This case illustrates the application of the principle for how to distinguish between liabilities and equity.
Facts
During 2004, Entity A has issued a number of financial instruments. It is evaluating how each of these instruments should be presented under IAS 32:
(a) A perpetual bond (i.e., a bond that does not have a maturity date) that pays 5% interest each year
(b) A mandatorily redeemable share with a fixed redemption amount (i.e., a share that will be redeemed by the entity at a future date)
(c) A share that is redeemable at the option of the holder for a fixed amount of cash
(d) A sold (written) call option that allows the holder to purchase a fixed number of ordinary shares from Entity A for a fixed amount of cash
Required
For each of the above instruments, discuss whether it should be classified as a financial liability and, if so, why.