A perpetual debt instrument has no requirement to repay the
principle – so why is it sometimes classified as a
liability?
When an entity issues a perpetual 'debt' it must first
understand all the features to determine whether the instrument is
a liability, equity or a compound financial instrument. This then
drives whether gains and losses are recognised in equity or in the
income statement.
The basics
What's a perpetual debt instrument?
Perpetual debt instruments (such as perpetual bonds, debentures
and capital notes) normally provide the holder with the contractual
right to receive payments in respect of interest at fixed dates
extending into the indefinite future. The holder often has no right
to receive a return of principal or might have a right under terms
that make it unlikely or far in the future.
