Hi everyone,
Quick question, when an entity issues redeemable pref to a third party and in the terms it says that it will be redeemed at the entity's shares fair market value at the date of the redemption. Should this be accounted:
1. Liability at fair value on initial recognition and using the amortised cost method during subsequent periods, along with a derivative instrument to reflect to potential variation in the value until the redemption date; Or
2. Liability at fair value on initial recognition and held at fair value during subsequent periods.
Thanks in advance
Redeemable preference shares
Re: Redeemable preference shares
And also, how to value the liability if there is no maturity date stated, but the holder can reclaim redemption at anytime.
Re: Redeemable preference shares
Please share more details about these instruments
Re: Redeemable preference shares
So basically, the issuer of the redeemable prefs will issue on day 1, pref shares with the following feature:
no specific maturity date. However, the holder can ask the issuer to redeem the prefs at anytime.
However, the issuer will have the option to either settle it with cash, cash being the fair value of the shares (e.g., 100 ordinary shares) at the time when the holder asks for redemption or settle it with issuers ordinary shares (100 ordinary shares).
no specific maturity date. However, the holder can ask the issuer to redeem the prefs at anytime.
However, the issuer will have the option to either settle it with cash, cash being the fair value of the shares (e.g., 100 ordinary shares) at the time when the holder asks for redemption or settle it with issuers ordinary shares (100 ordinary shares).
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jacktu0303
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Re: Redeemable preference shares
I found the Agenda Paper on the IASB website that is relevant to your question. Hope it is useful for your judgement.
https://www.ifrs.org/content/dam/ifrs/m ... shares.pdf
https://www.ifrs.org/content/dam/ifrs/m ... shares.pdf
Re: Redeemable preference shares
Updating this post with my current view:
- The issuer classifies this instrument as an Equity instrument because it can avoid delivering cash and can settle the instrument by delivering a fixed number of its own equity instrument for a fixed amount. 100 shares based on the amount of redeemable shares issued.
- However, the conversion feature may need to be considered whether separatly or together with the host, as a separate derivative instrument or not.
My view it's that it would probably need to recognise a derivative financial liabilities to take into account the fact that the entity can still choose cash option if the fair value of the prefs are less than 100 ordinary shares that will be issued if the share option is chosen.
- The issuer classifies this instrument as an Equity instrument because it can avoid delivering cash and can settle the instrument by delivering a fixed number of its own equity instrument for a fixed amount. 100 shares based on the amount of redeemable shares issued.
- However, the conversion feature may need to be considered whether separatly or together with the host, as a separate derivative instrument or not.
My view it's that it would probably need to recognise a derivative financial liabilities to take into account the fact that the entity can still choose cash option if the fair value of the prefs are less than 100 ordinary shares that will be issued if the share option is chosen.