I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

Redeemable preference shares mean that the company will redeem (repay) the nominal value of those 

shares at a later date. For example, 'redeemable 5% $1 preference shares 20X9' means that the 

company will pay these shareholders $1 for every share they hold on a certain date in 20X9. The shares 

will then be cancelled and no further dividends paid. Redeemable preference shares are treated like loans 

and are included as non-current liabilities in the statement of financial position. Remember to reclassify 

them as current liabilities if the redemption is due within 12 months. Dividends paid on redeemable 

preference shares are treated like interest paid on loans and are included in financial costs in the 

statement of profit or loss. 

Irredeemable preference shares are treated just like other shares. They form part of equity and their 

dividends are treated as appropriations of profit. 

QUESTION 

Preference shares

 

How would you classify redeemable preference shares 20X9 in the financial statements for the year 

ended 30 June 20X8, if the shares are due to be redeemed in September 20X9? 

A 

As part of equity 

B 

A long-term liability 

C 

A current liability 

ANSWER 

B 

The preference shares are not due to be redeemed until 15 months after the year end and so form