Accounting for preference shares (possibly FAO Steve!)

Monsoon

Ages ago I was trying to get my head round preference shares.

Steve Collings kindly wrote this article:
http://www.accountingweb.co.uk/topic/financial-reporting/any-answers-answered-frs-25ias-32/492915

I'm now utterly stuck on how to show it in the accounts. The way I've entered them in VT doesn't seem to show what I need it to.

Let's say I've got 5 ordinary shares at £1 each (A), 100 'ordinary preference' shares at £500 each (B) and 50 shares that fall under this category at £500 each (C):

Redeemable at issuer’s option at some future point in time
Non-discretionary
Liability plus an embedded call option derivative

My headache is in the Share Capital and Share Premium notes.

I have to say how much of each shares there are, and the value. Would these be:

Share capital
A number at £1
B Number at £1
C number at £500 (premium is part of cost of share)

Share premium
B number at £499 (premium paid)

The whole value of the C shares is a long term liability, and the whole value of the A and B shares is in Equity, split under nominal value £1 and share premium.

Have I got that right? When I put that into VT, I am out by the value of the number of C shares issued in the period. My head is too fried this afternoon to work out what I've missed there.

If I'm on the right lines though, that would be good to know!

Thanks all. If Steve's reading this, I would be eternally grateful for your guidance!

Steve Collings

Monsoon wrote: »

Ages ago I was trying to get my head round preference shares.

Steve Collings kindly wrote this article:
http://www.accountingweb.co.uk/topic/financial-reporting/any-answers-answered-frs-25ias-32/492915

I'm now utterly stuck on how to show it in the accounts. The way I've entered them in VT doesn't seem to show what I need it to.

Let's say I've got 5 ordinary shares at £1 each (A), 100 'ordinary preference' shares at £500 each (B) and 50 shares that fall under this category at £500 each (C):

The way I am reading this you are saying you have got 5 x ordinary £1 shares (A) = £5, 100 'ordinary preference' shares at £500 (B) = £500,000 (?) and 50 shares that fall under this category of 500 each = £25,000 (what is 'this' category??)

Monsoon wrote: »

My headache is in the Share Capital and Share Premium notes.

Share capital accounts will take the par value of the shares, the share premium account will take the actual premium paid - note I am not talking about any preference shares here which are not share capital if they have a redemption feature, or pay dividends to the holders of the pref shares as they will be classed as a liability.

Monsoon wrote: »

I have to say how much of each shares there are, and the value. Would these be:

Share capital
A number at £1
B Number at £1
C number at £500 (premium is part of cost of share)

Share premium
B number at £499 (premium paid)

If the par value of each share is £1 then, yes, if they were issued at (say) £3, then the share capital will take the number issued x £1, and the share premium will take the number issued x £2 (i.e. the premium).

Monsoon wrote: »

The whole value of the C shares is a long term liability, and the whole value of the A and B shares is in Equity, split under nominal value £1 and share premium.

This is where I am confused! Why would you need to recognise the C shares in equity (see quote box above the one i have just quoted where you quote 'Share capital') if they are a long-term liability - if the preference shares are a liability, they don't go anywhere in the equity section of the balance sheet. The entries in VT would simply be debit bank/credit long term liability (excuse me here as I don't use VT!)

Monsoon wrote: »

Have I got that right? When I put that into VT, I am out by the value of the number of C shares issued in the period. My head is too fried this afternoon to work out what I've missed there.

Monsoon

Thanks Steve, very much appreciated!

The A and B shares are definitely equity, A being ordinary and B being 'ordinary' preference, by which I mean they are ordinary shares that have been bought at a premium, not for par value.

The C shares are definitely liability. They are not going anywhere in equity. Sorry, must not have explained myself very well there. Should have put a full stop after long term liability. They are shares that pay dividends every year that is recognised as interest in the profit and loss and using your article definitely fall under the liability category, as per the criteria quoted.

The VT issue is simply that it is part-completing the note for me, and putting things in a different place to what I would expect. I might just override it and be done with it.

Thank you so, so much for taking the time to clarify this for me, and I'm glad I am on the right lines.

I owe you a drink!

PS yes, those numbers are approximately right.

Steve Collings

No problem - it does sound like you're on the right lines.

Usually in automated accounts production systems there's all sorts of little 'tick boxes' or 'things' you have to tell it to do in order for the system to know what you're trying to do. If you've got a technical support line for VT they might be able to tell you how to get around it, but if it's quicker to override it, then do that.

Cheers
Steve