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Hi mike, I listened to one of your lectures (am sorry I couldn’t give reference to the particular lecture because I can’t find it ) in which you commented about irredeemable preference shares and bonds, I reckon you were concern about if they are in practice debt or should be classified as equity, You did say you were going or might write the examiner to seek his opinion about it. Did you write him? what does he reckon if you did write him? would your concern relates/similar/identical to the one raised in Question 4 of June 2014 (P2/UK).
This is the reply I posted to this same question in the open forum – you really shouldn’t multiple post but I’m repeating the response here because maybe others can throw some light on the issue
“Hi, no, I never did write to the examiner. Maybe when I retire I shall give him some grief
My problem is that a dated redeemable preference share is clearly not equity and isn’t entitled to participate in a surplus on a liquidation – so it’s shown as long-term liability
Equity shares are entitled to participate in any surplus on a liquidation, so they clearly are correctly classed as equity – they are the last to be paid out by a liquidator
But what if we have irredeemable preference shares with no fixed or determinable future repayment date. They are part of financing, they aren’t long term debt but they’re also not equity because they typically won’t be entitled to participate in any surplus on a liquidation and, being preference shares, they will be repaid before the equity shares.
With impending retirement comes the growing need to ask questions that have been bugging me for years
Didn’t notice June 2014 Q4 UK, but I’ll have a look”
Thank you Mike, Yes I received a notification to say you have replied but couldn’t find the reply , hence I reposed. My apologies.
Thank you for your reply. I have read the examiner’s feedback as well, I came to the conclusion that you both had the same perception on the issue. He made emphasis to “substance over legal form” and “principle based reporting” as recommended by IAS 32 when dealing with such issues.
Once again thank you for prompt reply.
Many Thanks
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