ANNEX

IFRIC INTERPRETATION 2 Members’ Shares in Cooperative Entities and Similar Instruments

APPENDIX

EXAMPLES OF APPLICATION OF THE CONSENSUS

PROHIBITIONS AGAINST REDEMPTION (paragraphs 8 and 9)

Example 4

Facts
A11 Local law governing the operations of cooperatives, or the terms of the entity’s governing charter, prohibit an entity from redeeming members’ shares if, by redeeming them, it would reduce paid-in capital from members’ shares below 75 per cent of the highest amount of paid-in capital from members’ shares. The highest amount for a particular cooperative is CU 1 000 000. At the balance sheet date the balance of paid-in capital is CU 900 000.

Classification

A12 In this case, CU 750 000 would be classified as equity and CU 150 000 would be classified as financial liabilities. In addition to the paragraphs already cited, paragraph 18(b) of IAS 32 states in part:
... a financial instrument that gives the holder the right to put it back to the issuer for cash or another financial asset (a ‘puttable instrument’) is a financial liability. This is so even when the amount of cash or other financial assets is determined on the basis of an index or other item that has the potential to increase or decrease, or when the legal form of the puttable instrument gives the holder a right to a residual interest in the assets of an issuer. The existence of an option for the holder to put the instrument back to the issuer for cash or another financial asset means that the puttable instrument meets the definition of a financial liability.
A13 The redemption prohibition described in this example is different from the restrictions described in paragraphs 19 and AG25 of IAS 32. Those restrictions are limitations on the ability of the entity to pay the amount due on a financial liability, i.e. they prevent payment of the liability only if specified conditions are met. In contrast, this example describes an unconditional prohibition on redemptions beyond a specified amount, regardless of the entity’s ability to redeem members’ shares (e.g. given its cash resources, profits or distributable reserves). In effect, the prohibition against redemption prevents the entity from incurring any financial liability to redeem more than a specified amount of paid-in capital. Therefore, the portion of shares subject to the redemption prohibition is not a financial liability. While each member’s shares may be redeemable individually, a portion of the total shares outstanding is not redeemable in any circumstances other than liquidation of the entity.
Inserted by Commission Regulation (EC) No 1073/2005 of 7 July 2005 amending Regulation (EC) No 1725/2003 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council, as regards IFRIC 2 (Text with EEA relevance).