Cherry Ltd. had the following financial instruments transactions during 2019:

1. Cherry signed a contract with Green Ltd. in October that requires Cherry to deliver its ordinary shares equal in value to HK$1,000,000 on 1 February 2020. The market price of the ordinary share on 31 December is $8 per share. [4 marks]

2. Cherry issued a share option on 1 September to its employees that entitled them to buy 1,000,000 ordinary shares at an exercise price of $10 each in 6-month time. There is a premium of $1 which employees must pay to purchase their option right. All employees immediately pay their $1 premium and take up the share option. The market price of the ordinary share on 31 December is $8 per share. [3 marks]

3. Cherry issued cumulative preference shares, which would be mandatorily redeemable for cash in 5 years, but the dividends would be payable as part of the redemption amount at the redemption date. [3 marks]

Required:

Determine whether these financial instruments should be classified as a financial liability or an equity instrument of Cherry Ltd. Give reasons for your answer.