I have read the answer for this question and i still do not understand why Lidan is classed as liability and not an equity. Could someone please explain.
Lidan has in issue two classes of shares: A shares and B shares. A shares are correctly classified as equity. Two million B shares of nominal value of $1 each are in issue. The B shares are redeemable in two years’ time at the option of Lidan. Lidan has a choice as to the method of redemption of the B shares. It may either redeem the B shares for cash at their nominal value or it may issue one million A shares in settlement. A shares are currently valued at $10 per share. The lowest price for Lidan’s A shares since its formation has been $5 per share.
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SBR Q28 AVCO - Financial Instrument Help please
1y ago#1Choice for company
- give $1 in cash, or
- give share which it could have sold for $5 to $10
Logically it will give $1 in cash
Obligation to pay cash = liability
In the exam, you get the marks for the definitions - if your conclusion is slightly different, not a big issue
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