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Hello tutor,
Equity def: entity receiving/delivering a fixed number of its own equity instrument in exchange for a fixed amount of cash
–> i would have thought the definition was meant for liabilities, as liabilities have fixed amount to be paid while equity don’t,
can you clarify the logic behind this please?
Thanks a million!
Hi,
Equity is defined as the residual interest in the assets of an entity after deducting all of its liabilities, so I’m not too sure where your definition above comes from, sorry.
Thanks
Sir,
BPP answer on difference on debt and equity mentioned that if a contract is settled by the entity receiving or delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash is equity instrument; in contract if the amount of cash or own equity shares to be delivered or received is variable, then the contract is financial liability or asset.
Can you explain the rationale behind that why the contract settled by fixed number of equity for cash is equity but by variable amount is liability?
Thank you
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