Ind AS 32 Financial Instruments
Sumit Moradiya (12 Points)
09 May 2020
Irredeemable Preference share with descretionery dividend classified as Financial liability or Equity???
1 Replies
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 09 May 2020
During the issue of the shares, a company explicitly states what kind of an instrument it is based on the substance of the contract and not its legal form. Here preference share are debt instruments, an asset if it purchased and a financial liability if it is issued. Discretionary or not, the dividend payment is solely cash and this is not classified as convertible debt at the moment. The preference share don’t have maturity date and hence the issuer does not have a contractual obligation to make any payments.
It can be treated as an equity instrument, the issuer will settle it with his own equity instruments.
Therefore, it is a liability.
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