Different accounting treatment for instruments classified as debt and equity instruments ?
Different accounting treatment for instruments classified as debt and equity instruments
Instruments classified as debt (liabilities) are accounted for by recognizing an increase in an expense (or asset) and a corresponding increase in debt (a liability). The fair value of such liabilities determines the measurement of the transaction. Additionally, the debt (liability) must be remeasured at each reporting date and at settlement date.
Instruments classified as equity are accounted for by recognizing an increase in an expense (or asset) and a corresponding increase in equity. The fair value of the goods or services received is measured at the grant date fair value of the goods or services received and it is not subsequently remeasured. If the fair value of the goods or services received cannot be measured reliably, the transaction amount is determined indirectly by reference to the fair value of the equity instruments granted.
