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SIR i am having difficulty understanding this from your notes and lecture. Please correct me?
1) Redeemable preference shares capital is NCL in SOFP (on nominal value)?
2) Dividend paid on redeemable preference shares is just like interest expense so it will go in SOPL as finance cost?
3) Irredeemable preference shares capital is capital (or equity) in SOFP (on nominal value)?
4) Dividend paid on irredeemable preference shares will not appear anywhere in SOPL – But it will reduce the retained earnings in SOFP and statement of changes in equity?
Thank you so much for your efforts. 🙂
I am not sure which bit you are having difficulty with.
Redeemable preference shares are just like taking out a loan from someone at a fixed rate of interest. Therefore just as with a loan that are shown as non-current liabilities the SOFP and the dividend is just like paying interest and so is shown just as interest is shown in the SOPL.
Irredeemable preference shares are never repaid and so are just like ordinary shares (except that the dividend is fixed). Therefore on the SOFP they are shown along with equity, and the dividends do not appear on the SOPL (just as ordinary dividends do not appear) but instead appear on the SOCE as reducing the retained earnings.
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