QUESTION 2
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(b) With regard to the following financial instruments, explain clearly which should be
classified as financial liabilities and which as equity instruments, together with how each
should be recorded in the financial statements. ?
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(i) Cohen Limited issued 10,000 redeemable shares at par for £10,000. Redemption of the
shares for cash is at the discretion of Cohen Limited.
(ii) Diamond Limited issued 6000 non-redeemable shares for £6000. Diamond Limited is
required to pay an annual dividend in perpetuity equal to a rate of 5% of the par value
of the shares.
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(iii) Young Limited issued 20,000 shares for £4,000. The shares will be redeemed in three
years' time when Young Limited will deliver a number of its own ordinary equity
shares as are equal to the value of 500 ounces of gold.?
(iv) Prince plc issued £1,000,000 5% preference shares with a mandatory redemption of
the shares on 31 December 2025.
(v) Cooke plc issued 4,000 non-redeemable shares for £4,000. Dividend distributions are
at the discretion of Cooke plc.
