Alliance Entity (AE) issued the following instruments to raise funds for plant expansion: (a) debt instrument that does not charge interest but gives the holder the contractual right to receive 2,000 ordinary shares of AE, rather than cash, on maturity of the debt in four years; and (b) preference shares that pay no interest but will be settled in four years by AE delivering a number of its own ordinary shares equal to the value of $200,000. How should AE classify this these instruments?

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The Answer of Alliance Entity (AE) issued the following instruments to raise funds for plant expansion: (a) debt instrument that does not charge interest but gives the holder the contractual right to receive 2,000 ordinary shares of AE, rather than cash, on maturity of the debt in four years; and (b) preference shares that pay no interest but will be settled in four years by AE delivering a number of its own ordinary shares equal to the value of $200,000. How should AE classify this these instruments?

Alliance Entity (AE) Issued the Following Instruments to Raise Funds