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bental
1. are put options a financial liability as i thought put options have no obligations?
2. in solutions it states Fin instruments qualifies as a financial liability if the contingent and payment condition is beyond the control of both entity and the holder of the instrument. can you explain this?
3. what are unconditional rights?
6/13 q4
1. non adjusting event happened at year end, so we cannot adjust it, unless the balances were affected cause by this transaction2. can we go back to fin statements and amend it ( breach of covenants) or can we only disclose it on the notes after the year end before it was issued to auditors.
3. what are the adjusting and non adjusting events, do we have notes in this? and what chapter it goes under
thanks
Hi Karen
I believe this extract from the printed solution answers the first part of your question on Bental:
“Bental has a clear contractual obligation to buy B-shares from the non-controlling interest under agreed terms and thus this contractual obligation is a financial liability as defined in IAS 32. IAS 32 defines a financial liability as a contractual obligation to deliver cash or another financial asset to another entity. If there were an unconditional right to avoid delivering cash or another financial liability, the instrument would be considered as an equity instrument.”
You ask me to explain “Otherwise, a financial instrument qualifies as a financial liability if the contingent payment condition is beyond the control of both the entity and the holder of the instrument”
I presume you need an explanation of the expression “if the contingent …..”
Neither Bental nor the B shareholders can control the conditions that will activate the repurchase (when either “when their ownership in B-shares exceeds the regulatory requirement” or “minority shareholders can exercise their put options every three years” – presumably they will only exercise that option when the B share market value falls below the original cost paid by those shareholders
If a potential payment is dependent upon some external force, then it will qualify as a financial liability
You ask “what are unconditional rights?” – surely these are rights / entitlements that exist without any preconditions having to be satisfied. You have an unconditional right to continue to breathe air. Your continuing right to breathe is not conditional upon you continuing to satisfy some pre-condition
OK?
I’ll answer your June 2013 part of the post separately
Lizzer June 2013
“1. non adjusting event happened at year end, so we cannot adjust it, unless the balances were affected cause by this transaction”
So material is this non -adjuster that it should have been disclosed but, yes, because it’s a non-adjuster we cannot go back and amend the position as at 31 January. There MAY be an argument to say that the company is now no longer a going-concern in which case the non-adjuster should be treated as though it had happened before the year end – ie treat it as an adjuster. But the question merely calls into doubt the ability of Lizzer to continue – it’s not black and white that the company is NOT a going concern. An example of a non-adjuster being treated as an adjuster because going-concern is no longer appropriate would be the company being struck by a tsunami and the company had no insurance.
“2. can we go back to fin statements and amend it ( breach of covenants) or can we only disclose it on the notes after the year end before it was issued to auditors.”
Just disclose (fully!)
“3. what are the adjusting and non adjusting events, do we have notes in this? and what chapter it goes under”
Well!! I never realised that! There isn’t a chapter on subsequent events, neither in P2 nor in F7 notes! I know that I talk about them in lectures – maybe in F8 and / or P7 – it’s chapter 22 in the F8 course notes (not the slides)
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