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Hi, Please help me with this case.
Company A has an investment in Company B in the form of preference shares with no obligation to pay dividends but gives Company A the right to free using some of Company B’s infrastructure.
Should I classify this as an equity instrument or debt instrument in the Company’s financial statements applying IAS 32 and IFRS9, in both conditions of redeemable and irredeemable?Many thanks!
Based on what you have said I think if the preference shares have no obligation to pay dividends but give Company A the right to use some of Company B’s infrastructure, they should be classified as equity instruments in the Company’s financial statements.
This classification applies to both redeemable and irredeemable preference shares. Redeemable preference shares are normally treated as a liability, but in this case, since there is no obligation to pay dividends, they would be classified as equity.
Similarly, irredeemable preference shares are also treated as equity in the accounts.
Hi, Many thanks for your reply, just one more question,
In the definition of financial instrument :’any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity’
Is the right to use infrastructure fall within the term of a financial asset in the above statement ?
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