Question: Many financial instruments include characteristics of both a liability and equity. Read ASC 480- 10- 15 para-graphs 3 and 480-10-15para-graphs3and 4 and ASC 480- 10-

Many financial instruments include characteristics of both a liability and equity. Read ASC 480- 10- 15 para-graphs 3 and 480-10-15para-graphs3and 4 and ASC 480- 10- 25, paragraph 1. Also read International Accounting Standard 32, paragraphs 28 through 32. In addition, read the relevant paragraphs in the Basis for Conclusions in Statement of Financial Accounting Standards No. 150, paragraphs B50 through B54, as well as the relevant paragraphs in the Basis for Conclusions in International Accounting Standard 32, paragraphs BC 22 through BC 31.

a. How does U. S. treat these instruments? How does IFRS treat these instruments?

b. Provide a discussion of the rationale each standard- setting body used to arrive at their conclusions.

c. B ased on the thoughts of the boards, it appears that there is a trade- off with respect to the bifurcation decision. What is this trade- off and which view do you prefer?

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