Hello,
I am struggling with the accounting treatment of the following preferred shares:
- they are mandatorily redeemable in five years; and
- they give voting rights to the holder (~25% of total).
From a preliminary analysis they seem a debt instrument to be accounted for at FVTPL. At the same time, they seem guaranteeing significant influence for the next five years, implying the use of IAS 28.
How should I account for this instrument?
Regards,
Brains12
Redeemable preferred shares and equity accounting
Re: Redeemable preferred shares and equity accounting
no interest or 'dividends'?
Re: Redeemable preferred shares and equity accounting
Dividends are cumulative to be paid at the redemption date or before that, if cash available.
Re: Redeemable preferred shares and equity accounting
Seems to be a liability, no features of equity... (para 16 IAs 32).
cumulative Dividends are fixed coupon?
Plus perhaps you have significant influence over that entity too, so associate?
cumulative Dividends are fixed coupon?
Plus perhaps you have significant influence over that entity too, so associate?
Re: Redeemable preferred shares and equity accounting
Thank you, this is also my view. It seems a liability, because there in an obligation for the issuer to deliver cash at the redemption date. The dividends are fixed coupons and they are at market rate.
From an holder perspective, I will account for it at FVTPL in the balance sheet as a financial asset.
But I still have some doubts: this instrument gives me also voting rights and significant influence over the issuer. Should I account for it in accordance to the equity method or still using the FVTPL because it is a debt instrument?
From an holder perspective, I will account for it at FVTPL in the balance sheet as a financial asset.
But I still have some doubts: this instrument gives me also voting rights and significant influence over the issuer. Should I account for it in accordance to the equity method or still using the FVTPL because it is a debt instrument?
Re: Redeemable preferred shares and equity accounting
Equity method doesn't mean the instrument is equity. There are two separate issues; one is accounting for the loan, and the other is considering the relationship with that entity from a consolidation perspective.
Re: Redeemable preferred shares and equity accounting
By the description it looks like this is a debt instrument. You may have voting rights, but you don't seem to be exposed to any variable returns. Why FVTPL though?
Re: Redeemable preferred shares and equity accounting
Fair value at initial recognition and amortised cost subsequently.
Re: Redeemable preferred shares and equity accounting
Thank you all for your help. I think the key is that I am not subject to any variable returns.
I will account for it at fair value at initial recognition and amortised cost after.
Thank you again!
I will account for it at fair value at initial recognition and amortised cost after.
Thank you again!