Solution

This instrument has two components – (1) mandatory interest by the issuer for a fixed amount at a fixed future date, and (2) perpetual nature of the principal amount.

The first component is a contractual obligation to deliver cash (for payment of interest) to the lender that cannot be avoided. This component of the instrument is a financial liability.

The financial instrument in this case is a perpetual loan taken by P Co. Limited from Q Co. Limited. The loan has the following features:

1. It is perpetual, which means that there is no fixed maturity date for the loan.
2. The loan entitles the holder to fixed interest of 8% p.a.

Based on these features, the perpetual loan can be classified as a financial liability. This is because the holder of the loan is entitled to receive a fixed rate of return (i.e., interest of 8% p.a.) indefinitely, and there is no fixed date for the repayment of the loan.

The fact that the loan is perpetual means that it has no fixed maturity date and can be considered as a form of equity financing. However, the fact that the loan entitles the holder to fixed interest of 8% p.a. makes it more similar to a debt instrument.

Therefore, the perpetual loan taken by P Co. Limited from Q Co. Limited is a financial liability and represents a form of debt financing for P Co. Limited.