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Sir by default if nothing is mentioned then what assumption do we make of preference shares? That they are irredeemable or redeemable?
2) in case of redeemable preference shares, we treat dividends as a part of finance costs and is deductible for tax purposes just like normal interest on debt, right?
And in case of irredeemable preference shares, dividends will be deducted from profit after interest and tax, right? Their treatment follows that of equity, isn’t it?
Dividends on preference shares are not tax allowable regardless of whether they are redeemable or irredeemable.
and sir when finding Debt/ Equity ratio, do we put irredeemable preference shares in the numerator or denominator?
In the context of Paper AFM both redeemable and irredeemable are included in long term debt.
Paper AFM is only concerned with gearing insofar it affects the riskiness of the shares. It is the fact that fixed interest is being paid that makes the shares more risky, and preference shares are effectively fixed interest regardless of whether they are redeemable or irredeemable.
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