Sbr (int/UK) Strategic Business Reporting

(1 mark) 

 

(Part (a): 7 marks max) 

(b) 

(i) 

Issue of ordinary shares 

Under this proposal, Medsupply would pay for the building by issuing its own 

equity  instruments.  In  accordance  with  IFRS  2  Share-based Payments, this 

would be an equity-settled share-based payment. 

(1 mark) 

The transaction is with a supplier and the fair value of the building can be 

measured reliably. As such, the transaction would be measured at $15 million. 

 

(1 mark) 

The building would be recognised at $15 million. Share capital would be 

increased by $10 million (10m × $1) and the remaining $5 million would be 

recognised as share premium (other components of equity). 

(1 mark) 

Recording this transaction has no impact on liabilities, but increases equity. As 

such, it will have a positive impact on gearing. 

(1 mark) 

This will made Medsupply appear less risky to financial statement users, 

because equity instruments do not obligate the company to make mandatory 

repayments.  

(1 mark) 

However, the issue of shares will dilute the interests of existing shareholders. 

Earnings per share will decline, unless the entity can grow its profits.  (1 mark) 

Some investors may also perceive the dilution of their interests negatively, 

which could have an impact on overall market capitalisation.