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A puttable ordinary share otherwise qualifies for equity classification, EXCEPT that the holder is also entitled to convert it into a VARIABLE NUMBER of issuer's equity shares (the number varying with the issuer's market value). Under Ind AS 32, the share is classified as:
AOutside Ind AS 32 because it has multiple settlement features
BEquity — the puttable-equity exception still applies because the conversion is also into the issuer's own equity
CEquity for the puttable feature and a separate financial liability for the conversion feature (compound)
DWholly a financial liability — the variable-number conversion feature is an "other contractual obligation to settle in a variable number of own equity," breaching condition (4) of the puttable-equity exception
Answer & Solution
Correct answer: D. Wholly a financial liability — the variable-number conversion feature is an "other contractual obligation to settle in a variable number of own equity," breaching condition (4) of the puttable-equity exception
Condition (4) of para 16A requires that, APART from the contractual obligation to repurchase/redeem for cash, there are NO OTHER contractual obligations either to deliver cash or to settle in a variable number of own equity. The variable-number conversion feature violates this requirement. The entire instrument therefore fails the puttable-equity exception and is classified as a financial liability.
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