References

• IAS 32 Financial Instruments: Disclosure and Presentation
• IAS 39 Financial Instruments: Recognition and Measurement

History

• SIC D34 Issued 12 September 2001.
• Because of divergent views presented by respondents to the proposals in SIC D34, in December 2001 the IASB decided to address the issue as part of its project to improve IAS 32 rather than approve a final Interpretation. SIC D34 was not issued as a final Interpretation.
• Withdrawn by IAS 32 (Revised 2003).

Summary of SIC D34

A puttable instrument is a financial instrument or a right that gives the holder the right to put the instrument or right back to the issuer for cash or another financial asset. The amount payable upon redemption is determined based on an index or other item that has the potential to increase and decrease.

In some circumstances, the legal form of such an instrument or right includes a right to a residual interest in the assets of the enterprise after deducting certain of its liabilities. For example, open-ended mutual funds and certain co-operative enterprises may provide their unitholders or members with a right to redeem their interests in the enterprise at any time for cash equal to their proportionate share of the net asset value of the enterprise.

The Draft Interpretation addresses how the issuer should classify a Puttable Instrument.

SIC D34 proposes that the entire instrument should be classified as a liability. The Draft Interpretation also addresses whether a Puttable Instrument is a hybrid financial instrument that consists of both a host contract and an embedded derivative that should be measured separately, and if so:

• (a) how the issuer should measure each component;
• (b) whether the issuer should present the components separately or on a net basis in the balance sheet; and
• (c) how the issuer should present any gain or loss arising from remeasurement in the income statement.

D34 proposes that a Puttable Instrument is a hybrid financial instrument consisting of two components:

• (a) a host contract that is similar to a deposit repayable for a fixed amount; and
• (b) an embedded non-option derivative that represents a principal payment indexed to an underlying variable.

When recognised initially, the host debt component should be measured at cost, net of transaction costs, and the embedded derivative should be measured at zero. Subsequent to initial recognition, the host debt component should be measured at amortised cost, and the embedded derivative should be measured at fair value.

As regards presentation, an issuer should present the host contract and embedded derivative components of a Puttable Instrument on a net basis in the balance sheet, and may present any gain or loss arising from remeasurement on a net basis in the income statement. In the extreme circumstance when an issuer has no equity as a result of issuing a Puttable Instrument, the issuer may also amend the descriptions in its income statement and present the net gain (net loss) separately with an appropriate description on the face of the income statement before profit or loss from ordinary activities.

The consensus in SIC D34 will affect open-ended mutual funds and certain co-operative organisations by requiring them to present their unitholders' funds as liabilities.

Issued for public comment on 12 September 2001. Comment deadline 5 November.

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