BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Due to IAS 3
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Due to substance over form concept
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Due to Concept of limited liability
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Due to separate legal entity
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Detailed explanation-1: -For example, preference shares required to be converted into a fixed number of ordinary shares on a fixed date, or on the occurrence of an event that is certain to occur, should be classified as equity.
Detailed explanation-2: -RPS classified as Liability As per IAS 11, a financial liability is defined as: a contractual obligation to deliver cash or another financial asset to another entity, therefore, RPS which has this features should be classified as a liability.
Detailed explanation-3: -If preference shares are redeemable then shares are reported as liability in statement of financial position.
Detailed explanation-4: -Term of Redeemable Preference Shares According to Section 55(2) of the Act, a Company limited by shares may issue preference shares which are liable to be redeemed within a period not exceeding 20 years from the date of their issue.