Accounting treatment of OCRPS
This query is : Resolved
18 March 2026
We are evaluating the accounting classification (Ind AS 32) for a proposed investment structured as Optionally Convertible Redeemable Preference Shares (OCRPS) with the following key terms:
If the Company raises additional USD 30 million before 31-Mar-2029, the OCRPS will be converted into ordinary shares.
Until conversion, the instrument carries 15% p.a. compounded return, which will be converted into equity.
If the conversion does not happen by 31-Mar-2029, investors will have the following rights:
Put Option – Investor can demand repayment (Accrued Amount)
Drag Along Right – Can force sale of shares
Quarterly cash dividend payout, or
Conversion into a 5-year loan
Management expects the additional USD 30 million funding to be raised within the next 4–5 months, leading to conversion into equity.
Query:
In this scenario, should the OCRPS be classified as:
Equity,
Compound Instrument, or
Financial Liability
considering:
the presence of contingent redemption/put options, and
the expectation of near-term conversion?
If the Company raises additional USD 30 million before 31-Mar-2029, the OCRPS will be converted into ordinary shares.
Until conversion, the instrument carries 15% p.a. compounded return, which will be converted into equity.
If the conversion does not happen by 31-Mar-2029, investors will have the following rights:
Put Option – Investor can demand repayment (Accrued Amount)
Drag Along Right – Can force sale of shares
Quarterly cash dividend payout, or
Conversion into a 5-year loan
Management expects the additional USD 30 million funding to be raised within the next 4–5 months, leading to conversion into equity.
Query:
In this scenario, should the OCRPS be classified as:
Equity,
Compound Instrument, or
Financial Liability
considering:
the presence of contingent redemption/put options, and
the expectation of near-term conversion?
18 March 2026
Under Ind AS 32, the proposed Optionally Convertible Redeemable Preference Shares (OCRPS) must be classified as a Financial Liability.
While the ultimate goal of both the company and the investors may be an equity conversion, accounting standards prioritize the substance of the contractual obligations over the intended outcome.
While the ultimate goal of both the company and the investors may be an equity conversion, accounting standards prioritize the substance of the contractual obligations over the intended outcome.
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