Compound financial instruments

See example (excel )

A compound instrument is One contract that has two characteristics

- Financial liability
- Grants options to holder of the instrument to convert it into equity instrument

NB* Issued either from the issuers / holders perspective

 Always determine from who’s perspective

 Account for an instrument from what its substance is

Issuers perspective

Compound financial instruments

Classification conclusion recognition &measurement

1. Coupons/dividends Financial liability IFRS 9

2. Capital/principal/redemption amount Financial liability
3. Option to convert Equity IAS 32

 For all three components determine the classification whether financial liability or Equity
 After classification account for the components separately in terms of their applicable
standards

Holder:

- IAS 32
- Financial asset
- FVTPL

Note : The standard does not say a compound financial instrument is a convertible bond

 Convertible bond : Can be all legs being Financial liability /Equity and not be a compound
instrument

NB* Classification of the liability and equity components of a convertible instrument is not revised
as a result of a change in the likelihood that a conversion option will be exercised , even when the
exercise of the option may appear to have become economically advantageous to some holders

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