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ABC Ltd. has two classes of puttable shares. Class A holders are entitled to a pro-rata share of the entity's residual net assets on liquidation. Class B holders are entitled to a pro-rata share UP TO A MAXIMUM of ₹1 crore. Which class can potentially qualify for equity classification (assuming other conditions are met)?
AOnly Class B because its claim is capped and therefore predictable
BOnly Class A — Class B's cap means it is not a true pro-rata share of residual net assets
CNeither — puttable shares are always financial liabilities under Ind AS 32
DBoth Class A and Class B equally, since both are puttable shares with residual-asset entitlement
Answer & Solution
Correct answer: B. Only Class A — Class B's cap means it is not a true pro-rata share of residual net assets
The puttable-instrument exception (paras 16A-16B) requires entitlement to a PRO-RATA share of residual net assets on liquidation. The ₹1 cr cap on Class B means its entitlement is not pro-rata — it cannot be classified as equity. Class A may qualify if all other conditions are met (most subordinate class, identical features, etc.).
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