Page 51 - Ebook Financial Accounting 3

➢ These are included in the initial carrying value of financial assets and

liabilities unless they are carried at fair value through profit or loss when the transaction
costs are recognised in the income statement.

➢ The costs are either charged as expenses or deducted from the liability, depending
which the liability is classified.

✓ Amortized cost: transaction cost are deducted from the liability.

✓ Fair value: transaction costs are written off as expenses.

3.3 The treatment for issuance redeemable preference shares, debentures and

convertible loan stocks

a) issuance redeemable preference shares
➢ The constitution of a company may permit the issue of redeemable preferences shares

with an obligation to redeem the shares at a specified or determinable dates

➢ Classified as liability in the statement of financial position.
➢ Dividend treated as expenses and disclosed in the statement of comprehensive income.

➢ The procedure for issuance of redeemable preference shares are the same as for equity
shares.

Example 3.1

On 1 January 2015, RichWork Bhd issued 5% 5,000,000 redeemable preference shares at RM1

each. Dividend is payable on paid-up capital. The effective interest rate is 7.3 percent and the
interest date is 31 December.

The market price of the shares in years 2015 to 2018 is stated below:
31 December 2015 RM1.05

31 December 2016 RM1.07
31 December 2017 RM1.08

31 December 2018 RM1.10

Required:

Discuss the accounting treatment where the preference shares are measured at:
a) Amortized cost

b) Fair value through profit or loss

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