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22.1.1 Extract from FRS 102 – Section 22.1-22.2.
22.2 Classification of an instrument as liability or equity.
22.2.1 Extract from FRS 102 – Section 22.3.
22.2.2.1 Definition of financial liability.
22.2.2.2 Definition of equity.
22.2.3 Accounting treatment of instruments classified as debt
22.2.5 Treatment of dividend on instruments classified as equity.
22.2.6 Examples illustrating whether an instrument meets the definition of debt or equity.
22.2.6.1 Redeemable preference shares at option of the holder with mandatory coupon.
22.2.6.2 Non-redeemable preference shares with mandatory coupon at market rate.
22.2.6.4 Shares/loan notes redeemable at the option of the holder
22.2.6.5 Non-redeemable preference shares with discretionary dividend.
22.2.6.6 Redeemable preference shares at option of issuer with discretionary dividend.
22.2.6.7 Redeemable preference shares at option of issuer with mandatory.
22.2.6.9.1 Treatment of difference between present value ad actual amount subscribed for
22.2.6.13 Fixed for fixed arrangement
22.2.6.14 Equity issued in return for a forward contract to issue foreign currency.
22.3.2.2 Contingency element is not genuine.
22.3.2.3 contingency occurring on liquidation.
22.3.2.5 Examples of uncertain future/changed events outside the control of the issuer
22.3.2.6 Example of instruments to be classified as a debt or equity.
22.4 Original issue of shares or other equity instruments.
22.4.1 Extract from FRS 102 – Section 22.7-22.10.
22.4.2 OmniPro comment – Accounting treatment
22.4.2.4 Examples of share issues – accounting treatment
22.5 Exercise of options, rights and warrants.
22.5.1 Extract from FRS 102 – Section 22.11.
22.6 Capitalisation or bonus issues of shares and share splits.
22.6.1 Extract from FRS 102 – Section 22.12.
22.7.1 Extract from FRS 102 – Section 22.13-22.15.
22.7.2.1 Determining the split of debt and equity.
22.7.2.2 Treatment of transaction cost
22.7.2.3 Subsequent revisions.
22.7.2.4 Accounting for the liability.
22.7.2.5 Examples of compound financial instruments.
22.7.2.6 Compound Financial instrument example.
22.7.2.7 Accounting for the convertible option once exercised or option to exercise is not taken.
22.7.2.8 Allocation of transaction costs.
22.8.1 Extract from FRS 102 – Section 22.17-22.18.
22.8.2.1 Distribution of shares classified in equity.
22.8.2.2 Distributions on shares classified as debt (i.e. On shares classified on debt)
22.8.2.3 Disclosure of fair value of non-cash distributions.
22.9 Non-controlling interest and transactions in shares of a consolidated subsidiary.
22.9.1 Extract from FRS 102 – Section 22.19.
22.9.2.2 Accounting for acquiring a further controlling interest
22.9.2.3 Accounting for disposals of controlling interests but controlling interest retained.
22.10.1.1 Statement of changes in equity.
22.10.1.2 Accounting Policies.
22.10.1.3 Note to the financial statements.
22.10.1.4 Notes in relation to dividends
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22.10 Disclosures
22.10.1 OmniPro comment
Detailed below are the illustrations of the disclosure requirement of company law as well as section 22.18 of FRS 102.
22.10.1.1 Statement of changes in equity
Example 24: Extract of Statement of Changes in Equity from financial statements
Statement of Changes in Equity
For the Year ended 31 December 2015
| Equity Share Capital | Revaluation Reserve | Other
Reserve |
Retained Earnings | Cash flow hedge Reserve | Total attributable to the Parent | Non-controlling Interest |
Total Equity |
|
| CU | CU | CU | CU | CU | CU | CU | CU | |
| Balance at 1 January 2014 | 100,000 | 225,000 | 115,375 | 115,375 | 1,000 | 331,375 | 100,000 | 441,375 |
| Changes in ownership interests in subsidiaries which do not result in a loss of control | (100,000) | – | ||||||
| Profit for the year | 10,000 | 83,818 | 91,818 | 2,000 | 93,818 | |||
| Balance at 31 December 2014 | 100,000 | 225,000 | 0 | 209,193 | 1,000 | 2,000 | 535,193 | |
|
Balance at 1 January 2015 |
100,000 | 225,000 | 0 | 209,193 | 1,000 | 0 | 0 | 535,193 |
| Equity Shares issued net of issue costs | 20,000 | 20,000 | ||||||
| Profit for the year | 1,005,772 | 1,005,772 | 10,000 | 1,005,772 | ||||
| Equity dividends paid (see note XX) | (9,900) | (9,900) | (100) | (10,000) | ||||
| Equity dividend declared but not paid | — | — | — | — | — | — | — | — |
| Capitalisation of shares | 1,000 | (1,000) | – | – | ||||
| Other Comprehensive Income | (15,000) | (15,000) | (15,000) | (15,000) | ||||
| Balance at 31 December 2015 | 109,000 | 225,000 | (14,000) | 1,214,965 | (15,000) | XXXX | 10,100 | 1,554,965 |
22.10.1.2 Accounting Policies
Example 25: Extract from accounting policies note
To be included in the financial instruments note
Preference share capital
Redeemable preference shares and the cumulative preference dividend reserve have been classified as liabilities in the balance sheet. The preference dividend is charged in arriving at the interest cost in the profit and loss account. (include the following where applicable) However no dividends will be paid on the cumulative preference shares until the company has positive profit and loss reserves.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.
22.10.1.3 Note to the financial statements
Example 26: Extract from notes to the financial statements – liability
NOTE: in the example below the cumulative preference dividend reserve is separated as this dividend was not paid
| Creditors – amounts falling due within one year | 2015 | 2014 |
| CU | CU | |
| 11% redeemable cumulative “A” preference share capital of
CU1 each (see (i) below) |
XXXXX |
XXXXX |
| Redeemable cumulative “B” preference share capital of CU1
each (see (i) below) |
XXXXX |
XXXXX |
| Convertible loan notes (iii) below) |
XXXXX |
XXXXX |
| Cumulative preference dividend reserve (see (ii) below) | XXXXX
|
XXXXX
|
| XXXXXX | XXXXXX |
(i) These shares are classified as liabilities in accordance with Section 22 (Liabilities and Equity). The rights attaching to these shares are detailed in the share capital note (note X)
(ii) Provision for a dividend in respect of the preference shares has been transferred to this reserve. This reserve is classified as a liability, in accordance with Section 22 (Liabilities and Equity).
(iii) The convertible loan notes were issued on XXXXXX. Interest accrues annual in arrears and is payable at a rate of 5%, These are convertible at the option of the holder into equity shares in two years time. The undiscounted value is CUXXXX.
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Examples
Example 1: Redeemable preference shares at option of the holder with mandatory coupon.
Example 2: Non-redeemable preference shares with mandatory coupon at market rate.
Example 4: Shares redeemable at the option of the holder
Example 5: Non-redeemable preference shares with discretionary dividend.
Example 6: Redeemable preference shares at option of issuer with discretionary dividend.
Example 7: Redeemable preference shares at option of issuer with mandatory dividend.
Example 13: Fixed for fixed arrangement
Example 13A: Application of Section 22.3(b)(ii) of FRS 102.
Example 13B: Future contingency amount
Example 13C: Future contingency.
Example 14: Accounting treatment on original issue of shares.
Example 15: Accounting treatment on original issue of shares – left as unpaid.
Example 16: Capitalisation/bonus issue.
Example 17: Accounting treatment for a compound financial instrument
Example 18: compound instrument where conversion is chosen.
Example 19: compound instrument where conversion is chosen.
Example 20: Accounting for transaction costs in acquiring a compound financial instrument
Example 21: Acquiring a further controlling interest
Example 22: Acquiring a further controlling interest
Example 23: Disposing of controlling interest but controlling interest retained.
Example 24: Extract of Statement of Changes in Equity from financial statements.
Example 25: Extract from accounting policies note.
Example 26: Extract from notes to the financial statements – liability
Example 27: Extract from notes to the financial statements – share capital
Example 28: Extract from notes to the financial statements – dividends on equity shares.
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Example 27: Extract from notes to the financial statements – share capital
| 8 Called up ordinary share capital | 2015 | 2014 |
| CU | CU | |
| Authorised ordinary share capital | ||
| 1,000,000 ordinary shares of CU1 each | XXXX
|
XXXXX
|
| 100,000 “A” ordinary shares of CU1 each | XXXX
|
XXXXX
|
| Issued and fully paid ordinary share capital | ||
| 492,000 ordinary shares of CU1 each | XXXX | XXXX |
| 7,000 “A” ordinary shares of CU1 each | XXXX
|
XXXX
|
| Shares presented as equity | XXXXX | XXXXX |
On 1 April a further 20,000 shares were issued at CU1.50 each.
| Preference share capital | 2015 | 2014 |
| CU | CU | |
| Authorised preference share capital | ||
| 2,250 redeemable convertible “A” preference shares of CU1 each | XXXXX | XXXXX |
| 300 11% redeemable cumulative “B” preference shares of CU1
each |
XXXXX | XXXXX |
| 100 redeemable cumulative “C” preference shares of CU1 each | XXXXX | XXXXX |
| 600 3% cumulative redeemable convertible “D” shares of CU1
each |
XXXXX
|
XXXXX
|
| XXXXX
|
XXXXX
|
|
| Issued and fully paid preference share capital | ||
| 2,250 redeemable convertible “A” preference shares of CU1 each | XXXXX | XXXXX |
| 300 11% redeemable cumulative “B” preference shares of CU1
Each |
XXXXX | XXXXX |
| Shares presented as liabilities | XXXXX | XXXXX |
The redeemable “A” and “B” preference shares are classified as liabilities in accordance with Section 22 (Liabilities and Equity). The rights attaching to each class of preference shares are as follows:
(a) 11% Redeemable cumulative “B” preference share capital
The holders of these shares shall be entitled to attend all general meetings of the company but not to vote. The holders are entitled to payment of their dividend in preference to all shareholders with the exception of the “D” shareholders.
The company was due to redeem these shares at par between XXXXX and XXXXX at a rate of 75,000 shares per annum. All arrears of cumulative dividends are to be paid at the time of redemption. At XX/XX/XX, these shares had not been redeemed.
The holders in the event of a winding up will be entitled to repayment of capital at par and dividends due in priority to the payment of other share classes.
(b) Redeemable cumulative “C” preference share capital
The holders of these shares shall be entitled to attend all general meetings of the company but not to vote.
The shares were entitled to be redeemed at par in equal tranches of 50,000 shares annually on the 1st of June each year commencing XX/XX/XX. At XX/XX/15 these shares had not been redeemed.
In the event of a winding up, the “C” shareholders will rank behind the “D” shareholders but in priority to all others in the right to repayment.
22.10.1.4 Notes in relation to dividends
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Example 28: Extract from notes to the financial statements – dividends on equity shares
| Dividends | 2015 | 2014 |
| CU | CU | |
| Dividend paid on ordinary shares of CU100 per share (2014:CU100) | XXXX | XXXX |
| Dividend declared but not paid on XXX ordinary share of CUXX each accrued at period end | XXXX | XXXX |
The dividend payable on the preference shares of CUXXXX (2013: CUXXXX) is included within interest payable and similar charges. The cumulative dividend payable on the preference shares which are classified as financial liabilities is CUXXX which has accumulated since 20XX.
During the year the company distributed a property to XXX. The book value transferred was CUXXX however its fair value was CUXXX
Example 29: Extract from notes to the financial statements – disclosure of preference dividend/convertible loan in interest payable
| Interest payable | 2015 | 2014 |
| CU | CU | |
| Interest payable on convertible bonds/loan | XXXX | XXXX |
| Interest payable on bank loans and overdrafts repayable within five
Years |
XXXX | XXXX |
| Preference dividend payable | XXXX
|
XXXX
|
| XXXXX | XXXXX |
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