Redeemable preference shares redeemed at a discount

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LindsayM
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Redeemable preference shares redeemed at a discount

Post by LindsayM »

Hi
I have a one redeemable preference share having a par value of $1,000 (accounted as equity as per IAS32). The share is redeemed at $512. How do we account the "discount on redemption" of $488.
Does it go to PnL as Other Income? And which IFRS treats this issue.
Thanks
Lindsay
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Marek Muc
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Re: Redeemable preference shares redeemed at a discount

Post by Marek Muc »

is it classified as a 100% equity instrument? then there's no P&L impact, just debit the equity at $512 and you're done
LindsayM
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Re: Redeemable preference shares redeemed at a discount

Post by LindsayM »

Hi
Thank you for your response.
Yes, it is classified as a 100% equity. In this class, the Company has only this 1 preference share. The company has paid for the redemption price of $512. If I debit equity with $512, then I will be left with $488 as balance in my balance sheet (1000 less 512).

I was thinking of the following journal:

DR Preference Share capital - $1,000
CR Bank - $512
CR Discount on redemption???? - $488 (which account to hit?)

So, how to account for the $488.
JRSB
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Re: Redeemable preference shares redeemed at a discount

Post by JRSB »

so they gave you 1000, and you have the option of giving them 500 back in settlement? What's in it for them?
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Marek Muc
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Re: Redeemable preference shares redeemed at a discount

Post by Marek Muc »

I like your questions, JRSB!
LindsayM
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Re: Redeemable preference shares redeemed at a discount

Post by LindsayM »

The settlement amount is based on the fair value of the share. That's why it is less than the nominal amount subscribed.
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Marek Muc
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Re: Redeemable preference shares redeemed at a discount

Post by Marek Muc »

LindsayM wrote: 03 Sep 2021, 11:08 So, how to account for the $488.
it stays within equity, you can transfer it to retained earnings if you don't want to keep the preference share reserve
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Marek Muc
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Re: Redeemable preference shares redeemed at a discount

Post by Marek Muc »

PS. I'm not sure if you can find a more specific IFRS reference than IAS 1.109
Changes in an entity’s equity between the beginning and the end of the reporting period reflect the increase or decrease in its net assets during the period. Except for changes resulting from transactions with owners in their capacity as owners (such as equity contributions, reacquisitions of the entity’s own equity instruments and dividends) and transaction costs directly related to such transactions, the overall change in equity during a period represents the total amount of income and expense, including gains and losses, generated by the entity’s activities during that period.
LindsayM
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Re: Redeemable preference shares redeemed at a discount

Post by LindsayM »

Thank you very much.
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