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In chapter 17, page 517, TYU 4
Below TB, there are few adjustments to take into account. I’ve understood all except for point 2. They are declared not paid. Ordinary shares are accounted for when paid. They are not accounted on accrual basis basis, Preference shares are. (That’s what I’ve learned in the previous chapters)
So why in the solution, there’s liability booked based on this adjustment? Isn’t this wrong?
Ordinary shares are accounted for when they are declared. In declaring them gives the entity the obligation to make the payment and meets the definition of a liability. We therefore need to accrue for the dividend to be paid.