- April 21, 2021 at 9:32 pm #618461Faizahmad1009Member
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I have 3 questions to ask you Sir John. Hope you are well 🙂
1) I do have a problem with the irredeemable preference shares as they are considered to be Long-term debt for the company because they have to pay a fixed dividend to the investors forever then why do we put them in the equity section of the Balance Sheet & why not in Non-current Liability?
2) Secondly, why irredeemable preference dividend is deducted from the Profit after tax before we divide that with the total number of shares to get the [Earnings per Share] of the company when calculation EPS formula?
3) Is it true that (Interest / MV) is used for both redeemable & irredeemable preference shares? Did the examiner ask for redeemable preference shares before in the exam?April 22, 2021 at 7:39 am #618488John MoffatKeymaster
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1. Irredeemable preference shares are never repayable and so are just like ordinary shares (which are also never repayable) except for the fact that they pay a fixed dividend.
2. Earnings per share are the earnings available for ordinary shareholders divided by the number of ordinary shares. The earnings available for ordinary shareholders is what is left after payment of any preference dividends.
3. No it is not true. For irredeemable shares then the cost is interest/MV. For redeemable preference shares then the cost. is the IRR of the flows (just as we calculate the cost of redeemable debt). Redeemable preference shares are rarely relevant in the Paper FM exam (although redeemable debt is very commonly asked).
I do suggest that you watch my free lectures. They are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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