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Whether a preference share or a convertible is debt, equity or both decides where dividends and interest go and what the balance sheet shows. ITFG answered many such questions on Ind AS 32 and a few on earnings per share under Ind AS 33. This digest restates them in our own words and checks the paragraph each relies on.
ITFG clarifications are the views of ICAI's Ind AS Technical Facilitation Group as on the date of each bulletin; they are not standards. On Ind AS 32, ITFG says the terms decide: a preference share with discretionary dividends and compulsory redemption is part liability, part equity; one the holder can put back at any time is wholly liability; a rights offer to all holders of a class at a fixed price is equity; and the foreign currency convertible bond exception in paragraph 11(b)(ii) is not extended to preference shares. On Ind AS 33, EPS is shown in both separate and consolidated statements, each on its own profit.
Ind AS as on 1 April 2025 (ICAI Compendium of Ind AS 2025-26, the standards notified under the Companies (Indian Accounting Standards) Rules, 2015). Amendments notified after 1 April 2025 are not reflected in this article and should be checked on mca.gov.in. Capital-instrument terms and their accounting are part of financial statement preparation whenever a company raises money.
How to read the table
Each issue is cited by bulletin and issue as printed at the end of the answer; the compendium numbers them differently. The last column says whether the paragraph relied on reads the same in the compendium text. For the standard itself see our guides to equity or financial liability under Ind AS 32, earnings per share under Ind AS 33, compound instruments and the paragraph 28 split and the outline of Ind AS 32.
Digest
| Situation | ITFG's view | Reference | Paragraph relied on; still the same? |
|---|---|---|---|
| Compulsorily convertible debentures whose coupon equals the market rate | Liability is the present value of the contractual cash flows at the market rate for a similar instrument without conversion; equity is the residual | ITFG Clarification Bulletin 13, Issue 10 | Ind AS 32, paragraph AG31: reads the same |
| Dividend on a liability-classified instrument declared after the year end | Accrues at the year end like interest, through the effective interest method; the Ind AS 10 rule against accruing declared dividends is for equity instruments | Bulletin 7, Issue 6 | Ind AS 32, paragraph 35; Ind AS 10, paragraph 12: reads the same |
| Optionally convertible preference shares issued by a subsidiary to its holding company, issuer holds the options, dividend discretionary | Equity in the subsidiary's separate accounts; in the parent's separate accounts an investment (cost or Ind AS 109); eliminated on consolidation | Bulletin 14, Issue 7 | Ind AS 32, paragraph 16; Ind AS 27, paragraph 10: reads the same |
| Foreign currency convertible bond: which rate to discount the liability part | The market rate for a comparable instrument in the same currency and term without the conversion option, not the coupon | Bulletin 15, Issue 1 | Ind AS 32, paragraphs 11(b)(ii), 28-29, AG31: reads the same |
| Non-cumulative redeemable preference shares with discretionary dividend | Compound instrument: liability is the present value of the redemption amount, equity is the residual; dividends are recognised when declared and relate to equity | Bulletin 15, Issue 2 | Ind AS 32, paragraphs 31, AG37: reads the same |
| Preference shares with a holder's put at par at any time and a conversion-or-redemption choice | The put is a demand feature, so the whole issue price is liability and nothing is equity | Bulletin 17, Issue 9 | Ind AS 32, paragraphs 15, 28-32; Ind AS 113, paragraph 47: reads the same |
| Rights offer of one class of shares to all holders of another class at a fixed price in any currency | Equity instrument: fixed number, fixed amount, offered pro rata to all existing owners of the same class | Bulletin 17, Issue 10 | Ind AS 32, paragraph 11(b)(ii): reads the same |
| Conversion option in preference shares redeemable in a foreign currency | Derivative liability: the exception is only for a convertible bond and is not extended by analogy | Bulletin 17, Issue 11 | Ind AS 32, paragraph 11(b)(ii): reads the same |
| Cumulative preference dividend arrears shown as a contingent liability before transition | If the shares are wholly liability, measure at amortised cost from issue, with accrued unpaid dividend in the carrying amount; the difference at transition goes to retained earnings | Bulletin 20, Issue 3 | Ind AS 32, paragraphs AG25-AG26; Ind AS 101, paragraph 11: reads the same |
| EPS in the statements of a partly owned subsidiary | Shown in both separate and consolidated statements; in separate statements, on profit attributable to that entity's own shareholders | Bulletin 11, Issue 3 | Ind AS 33, paragraphs 4, 9: reads the same |
| Deferred foreign currency exchange difference balance and basic EPS | Not deducted from profit for basic EPS, because the earlier option remains an option under Ind AS | Bulletin 10, Issue 5 | Ind AS 33, paragraph 12: reads the same |
Issues left out
None of the compendium's issues 118 to 127 is left out as superseded. The issue on the deferred exchange balance relates to the transition relief for long-term foreign currency items and is history for companies already on Ind AS.
Three answers explained
Terms decide, not names (Bulletins 15 and 17). Ind AS 32 asks whether the issuer has a contractual obligation to deliver cash or another financial asset (paragraph 11) or to settle in a variable number of shares. A mandatory redemption makes a liability; dividends at the issuer's discretion belong to the equity part (AG25-AG26, AG37). Where the holder can demand par at any time, the demand feature takes the full price into liability, as paragraph 47 of Ind AS 113 puts a floor on such a liability at the amount payable on demand.
The currency exception (Bulletin 17, Issue 11). Paragraph 11(b)(ii) treats a conversion option in a foreign currency convertible bond as equity if the exercise price is fixed in any currency; IFRS has no such exception. ITFG refuses to stretch it to a preference share, so the option in such a share is a derivative liability.
Dividend timing (Bulletin 7, Issue 6). For liability instruments, the periodic payment accrues at the reporting date whenever declared; for equity instruments a dividend declared after the year end is not a liability at that date (Ind AS 10, paragraph 12).
What a finance team should take from this
- Read every term: redemption, put, dividend discretion, conversion and currency, and classify the pieces separately.
- Use a market rate for a similar non-convertible instrument to value the liability part; the coupon is not the test.
- Record EPS on the profit that belongs to the entity's own shareholders in each set of statements.
Need help classifying an instrument?
If you are structuring preference shares, convertibles or an investor round, our team can document the classification, the split and the effective interest workings through financial statement preparation.
Key takeaways
- Redemption obligations make a liability; discretionary dividends go with equity.
- A holder's put at par makes the whole instrument a liability.
- The foreign currency convertible bond exception stays narrow.
- EPS appears in both separate and consolidated statements, each on its own profit.
Read next
- Equity or financial liability under Ind AS 32
- Earnings per share under Ind AS 33
- Compound financial instruments under Ind AS 32, paragraph 28 split
- Ind AS 32: financial instruments presentation
Disclaimer: Based on the Indian Accounting Standards as on 1 April 2025 (ICAI Compendium of Ind AS 2025-26, the standards notified under the Companies (Indian Accounting Standards) Rules, 2015) and, where named, the ITFG clarification bulletins of ICAI, as consulted on 4 October 2026. Amendments notified after 1 April 2025 should be checked on mca.gov.in. This article is general information, not legal advice; check the official text before acting.