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2 million preference shares for $2.80 each. No dividends are payable. The preference shares will be redeemed in two years’ time by issuing 3 million ordinary shares.
sir can you write the journal entries needed to record today(should be Dr. cash $5.6 and Cr. Preference share capital $5.6) and 2yrs later, if the FV per ordinary share after 2 yrs is $6. assume the nominal value per share is $1.
Doesn’t sound like SBR at all. At this level you would be discussing whether PS are liability or equity. Also I can’t see how the transaction makes any commercial sense. Is this from a SBR real exam question?
sir i think his question is not actually as straight forward as you think it is. 2years later 3m ordinary shares will be issued then we CR. Share capital $3m and Cr. Share premium $15m. but on Dr. side we will just have Dr. Prefernce share capital $5.6m. but this doesn’t offset the entire credit portion. $12.4m still remains
I am blocking here- the term preference shares is no longer used in IFRS. Where they exist in practice they are usually liabilities.
If they are equity, perhaps:
Dr PS 5.6 Cr OS 3 Cr SP with the balance
However, where share redemptions take place there are complex legal rules which vary from country to country – which is why I would have thought that the examiner would avoid the issue.
I would need to look at the exam question.
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