I - Total Equity (Share Capital + Reserves + Non-controlling interests): General principles 

1. Reference texts and definitions

1.1. Reference Standards

• IAS 33 - Earnings Per Share
• IAS 32 - Financial Instruments: Presentation
• IFRS 2 - Share-based payment

1.2. Definitions

Shareholders' Equity

Financial resources invested by the owners of the entity for the management of its activities. 

Ordinary share

(IAS 33, par 5)

An ordinary share is an equity instrument that is subordinate to all other classes of equity instruments.

(IAS 33, par 6)

Ordinary shares participate in profit for the period only after other types of shares such as preference shares have participated. An entity may have more than one class of ordinary shares. Ordinary shares of the same class have the same rights to receive dividends.

Potential ordinary share

(IAS 33, par 5)

A potential ordinary share is a financial instrument or other contract that may entitle its holder to ordinary shares.

(IAS 33, par 7)

Examples of potential ordinary shares are:

1. 1. financial liabilities or equity instruments, including preference shares, that are convertible into ordinary shares;
   2. options and warrants;
   3. shares that would be issued upon the satisfaction of conditions resulting from contractual arrangements, such as the purchase of a business or other assets.

Preference share

A financial instrument with preferential rights compared to other types of shares. These may include a fixed dividend, preferential purchase rights or other priority rights. Preference shares are either classified in equity or considered as financial liabilities. 

Treasury shares

(IAS 33, Illustrative examples - Example 2: Weighted average of ordinary shares)

Treasury shares are equity instruments reacquired and held by the issuing entity itself or by its subsidiaries. 

Share-based payment transaction

(IFRS 2, par 7)

An entity shall recognise the goods or services received or acquired in a share-based payment transaction when it obtains the goods or as the services are received.
The entity shall recognise

• • a corresponding increase in equity if the goods or services were received in an equity-settled share-based payment transaction, or
  • a liability if the goods or services were acquired in a cash-settled share-based payment transaction.

(IFRS 2 par 8)

When the goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets, they shall be recognised as expenses.

Equity instrument / financial liability

Equity instrument

(IAS 32, par 11)

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities. 

Financial instrument

(IAS 32, par 11)

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

(IAS 32, 16)

When an issuer applies the definitions in paragraph 11 to determine whether a financial instrument is an equity instrument rather than a financial liability, the instrument is an equity instrument if, and only if, both conditions (a) and (b) below are met..

1. 1. The instruments includes no contractual obligation:
      1. to deliver cash or another financial asset to another entity; or
      2. to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the issuer.
   2. If the instrument will or may be settled in the issuer's own equity instruments, it is:
      1. a non-derivative that includes no contractual obligation for the issuer to deliver a variable number of its own equity instruments; or
      2. a derivative that will be settled only by the issuer exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments. For this purpose the issuer’s own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the issuer’s own equity instruments.

A contractual obligation, including one arising from a derivative financial instrument, that will or may result in the future receipt or delivery of the issuer’s own equity instruments, but does not meet conditions (a) and (b) above, is not an equity instrument. 

For instance (IAS 32, par 18)

The substance of a financial instrument, rather than its legal form, governs its classification in the entity’s statement of financial position. Substance and legal form are commonly consistent, but not always. Some financial instruments take the legal form of equity but are liabilities in substance and others may combine features associated with equity instruments and features associated with financial liabilities. For example:

1. 1. A preference share that provides for mandatory redemption by the issuer for a fixed or determinable amount at a fixed or determinable future date, or gives the holder the right to require the issuer to redeem the instrument at or after a particular date for a fixed or determinable amount, is a financial liability.
   2. 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.

Compound Financial Instruments

(IAS 32, par 28)

The issuer of a non-derivative financial instrument shall evaluate the terms of the financial instrument to determine whether it contains both a liability and an equity component. Such components shall be classified separately as financial liabilities, financial assets or equity instruments. 

(IAS 32, par 29)

An entity recognises separately the components of a financial instrument that

1. 1. creates a financial liability of the entity and
   2. grants an option to the holder of the instrument to convert it into an equity instrument of the entity.

For example, a bond or similar instrument convertible by the holder into a fixed number of ordinary shares of the entity is a compound financial instrument. From the perspective of the entity, such an instrument comprises two components: a financial liability (a contractual arrangement to deliver cash or another financial asset) and an equity instrument (a call option granting the holder the right, for a specified period of time, to convert it into a fixed number of ordinary shares of the entity).

(IAS 32, par 30)

Classification of the liability and equity components of a convertible instrument is not revised as a result of a change in the likelihood that a conversion option will be exercised, even when exercise of the option may appear to have become economically advantageous to some holders.