Sbr (int/UK) Strategic Business Reporting

(1 mark) 

The equity element will not be remeasured, so no expense will arise in relation 

to the shares. 

(1 mark) 

The transaction has no cash impact, so will not be recorded in the statement of 

cash flows. 

(1 mark) 

This may make the investment in PPE less obvious to shareholders, so careful 

attention to the PPE disclosure note would be required. (1 

mark) 

 

 

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S BR  (IN T & U K) :  S TRA TE G IC  BU SINES S  RE POR TI N G 

18 

K A P LAN   P UB LI S HI NG 

Issue of preference shares 

In accordance with IAS 32 Financial Instruments: Presentation the preference 

shares will be classified on the statement of financial position as a liability. 

 

  

(1 mark) 

This is because there is a contractual obligation to transfer cash to the 

shareholders after four years. 

(1 mark) 

The financial liability would be initially recognised at its fair value of $15 

million.  

 (1 mark) 

It will be measured at amortised cost (because it is not held for trading) so 

interest would be charged at the effective rate of 12.5%. This gives a finance 

cost of $1.9 million in the first year. The liability would be carried at $16.9 

million at the end of the first reporting period. (1 

mark) 

The liability will have a detrimental impact on the gearing ratio, increasing the 

perception of risk. 

(1 mark) 

The carrying amount of the liability will continue to increase until redemption, 

which will have a negative impact on gearing.  

(1 mark) 

This may deter potential investors from advancing further resources to 

Medsupply.