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Sir ,I have some question about “Evolve” that is in the PYQ Sep/Dec 2016 Q3 part(a)
Extracts from examiner’s answer:
“even if the obligation is conditional on the counterparty exercising a right to redeem,as is the case with the scrip issue of Evolve”
1.Will, the company able to reject or says no to the SH even they want to exercise their right(put option) of the shares?
“Evolve had set up the conditions for the share capital increase in August 2016..”
2. Is it mean that Evolve given the option to SH to choose on that date so needs to recognise as a financial liability?
3.The question stated that “the transferring of the rights back to Evolve was a put option on its own equity ,which would lead to recoding changes in FV in Profit or loss in the next financial year”
Is it mean the financial liability is accounted as FVTPnL?
Thank you.
You need to use an exam kit – I cannot stress this point strongly enough (not examiner’s original jottings) – or you are going to overcomplicate
You should define equity and financial liability, then reach a decision – financial liability- you could probably also wedge in the idea that there is an adjusting event.
I cannot begin to imagine how they’ll measure the liability – probably using cost model
Keep it simple!
So if from SH perspective,the option 1 will be equity instrument and option 2 will be a financial asset(derivative)?
is it correct?
Thank you
The shareholder is probably a little old lady – she doesn’t prepare accounts.
However, if shareholder is a company, it will have a financial asset – though obviously that’s not that part of the question.
Sir,Thank you for your reply,I have one last concern
as option 1 is given new share and the option 2 is redemption /written the option, will it possibly be a compound financial instrument to Evolve which contain both liability and equity component?
Thank you.
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