IFRIC 2, titled "Members' Shares in Co-operative Entities and Similar Instruments"
Bilal Ahmad
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IFRIC 2, titled "Members' Shares in Co-operative Entities and Similar Instruments,"
The key aspects of IFRIC 2 are as follows:
1. Scope and Purpose: IFRIC 2 specifically addresses the accounting for members' shares in co-operative entities and similar instruments. These shares often have features that are different from typical equity or financial instruments.
2. Classification of Members' Shares: The interpretation guides on how to determine whether members' shares should be classified as liability or equity. The classification depends on the specific terms and conditions attached to the shares.
3. Redeemability of Shares: One of the crucial factors in classification is the redeemability of the shares. If the members' shares are redeemable at the option of the member, they are generally classified as financial liabilities. However, if redemption is subject to the co-operative entity's discretion, they may be classified as equity.
4. Puttable Instruments: IFRIC 2 also considers the puttable instruments rules. Shares that are puttable at a member's option could be liabilities unless certain strict conditions are met for equity classification under IAS 32.
5. Disclosure Requirements: Entities are required to disclose the nature and extent of restrictions on the members’ rights to redeem their shares, along with the financial effects of those restrictions.
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6. Interaction with Other Standards: While IFRIC 2 interacts primarily with IAS 32, it also relates to other standards like IFRS 9 "Financial Instruments" regarding the measurement and recognition of financial instruments.
7. Practical Implications: This interpretation is particularly relevant for co-operative entities and other similar entities that issue shares or instruments that may have characteristics of both equity and liabilities. The classification affects how these instruments are presented in the balance sheet and how changes in their value are accounted for in the financial statements.
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