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Financial instruments

How do you think we should classify the following specific methods of
financing an entity?

Instrument Classification

Ordinary shares Equity

Loans Liability

Debentures/loan stock/loan Liability
notes/bonds

Preference shares Depends!

If obligation to deliver cash exists = liability

e.g. redeemable preference shares or include
cumulative preference dividends

If no obligation exists = equity

e.g. irredeemable preference shares with dividends
that are not cumulative.

Convertible loans Both!

(loans that can be turned into Hybrid instruments contain both liability
shares in the future) components and equity components.

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