A company has issued redemable preference shares. The terms and conditions of the shares are as follows:
The shares carry dividend at the rate of 6%. These dividends are to be paid out of profits and are cumulative, meaning that if there are not enough profits during the year, the dividend will get accumulated and will be paid subsequently. The dividend is paid in priority to ordinary dividend.
However the shares are redeemable AT THE SOLE DISCRETION OF THE COMPANY.
Should the shares be classified as perpetual debt or compound instrument (equity for nominal value of shares and liability for dividend payments?
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Classification as perpetual debt or compound instrument
Replies (2)
Quick Summary
The preference shares are to be classified as compound instruments .
Thanks a lot Prasad
Can you please send me the references for this?
Also how should the present value of the future dividend be calculated?
Can you please send me the references for this?
Also how should the present value of the future dividend be calculated?
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