For a financial instrument to be classified as an equity instrument,the instrument must include:
A) no contractual obligations whatsoever
B) a certification of public approval from ASIC.
C) a contractual obligation to exchange financial assets or financial liabilities with another entity under conditions that are unfavourable to the issuer.
D) no contractual obligation for the issuer to deliver a variable number of shares of its own equity if settled with such an issue.

Question

Quizplus · Accepted Answer

According to IFRS, for a financial instrument to be classified as an equity instrument, it must have no contractual obligation for the issuer to deliver a variable number of shares of its own equity if settled with such an issue. This means that the instrument should not have any provisions that require the issuer to deliver a variable number of shares in exchange for settling the obligation. Such instruments are considered equity instruments because they represent ownership in the entity rather than a liability. Choices A, B, and C are incorrect as they do not represent the criteria for classifying an instrument as equity.

For a Financial Instrument to Be Classified as an Equity