Please explain briefly the pros and cons of the below statements by providing significant points. Explaining/supporting points with an example would be so much appreciated.

1. issuers should account for an instrument with both liability and equity characteristics entirely as a liability or entirely as an equity instrument depending on which characteristic governs; or
2. Issuers should account for an instrument as consisting of a liability component and an equity component that should be accounted for separately.

(Please consider conceptual issues regarding the practicable and theoretically appropriate treatment, unconstrained by US GAAP and IFRS and convertible bonds as the instrument with liability and equity characteristics.)