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instruments.
A financial instrument otherwise meeting the definition of equity instruments, issued to acquire a fixed number of an entity’s own nonderivative equity instruments
for a fixed amount in any currency are classified as equity instruments, provided the offer is made pro rata to all existing owners of the same class of the entity’s own
nonderivative equity instruments.
Example
An entity whose functional currency is the euro issued share warrants whereby the holder of each warrant is entitled to acquire one equity share of the entity
for a price of US$15 per share. The offer is made by the entity to all existing owners of the equity shares.
Generally, a derivative instrument relating to issue of an entity’s own instruments is classified as equity only if it results in the exchange of a fixed number of
equity instruments for a fixed amount of cash or other financial asset. In this example, it could have been argued that since the cash would be received in US
dollars, the amount of cash received in the functional currency, euro, was variable. Hence it could have been argued that the instrument should be classified as
liability and not equity.
The Board considered the argument and held that such transactions represent transactions with equity owners in their capacity as owners. Hence the Board
concluded that such instruments, if issued pro rata to all existing owners, would quality as equity.
Notes on Financial Statements
24. Financial instruments and financial risk factors
EXTRACTS FROM FINANCIAL STATEMENTS
BP PLC, Annual Report, 2009
The accounting classification of each category of financial instruments, and their carrying amounts, are set out below.