GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Current assets
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Current liability
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Non-current assets
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Non-Current liability
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Detailed explanation-1: -Redeemable preference shares are treated like loans and are included as non-current liabilities in the statement of financial position. However, if the redemption is due within 12 months, the preference shares will be classified as current liabilities.
Detailed explanation-2: -Example – Redeemable preference shares The dividend and redemption result in Company A having an unavoidable obligation to pay cash. Therefore, the preference shares must be classified as a financial liability.
Detailed explanation-3: -If any, the redeemable preference shares are reported by the company in its balance sheet in the shareholder’s equity section.
Detailed explanation-4: -Redeemable preference shares allow for the repayment of the principal share capital to shareholders. The company may redeem these shares at an agreed value on a specified date or at the discretion of the directors. This is on the condition that the company is a going concern.