Lets have another discussion!!

Ok, I Will Carry onThis Discussion .

Preference shares (prefs) are legally shares, but they are very different from ordinary shares. The economic effect of prefs is more like that ofbonds. Like convertibles, they are regarded as hybrids of debt and equity:

• Dividends on preference shares have to be paid before dividends on ordinary shares.

• Dividends on ordinary shares may not be paid unless the fixed dividends on preference shares is paid first.

• Dividends are fixed like bond coupons, although there are usually provisions to not pay, or delay payments.

• Preference shareholders have a higher priority if a company isliquidated than ordinary shareholders, although a lower priority than debt holders.

• In the case of cumulative prefs, if the dividend is not paid in full, the unpaid amount is added to the next dividend due.

• Preference dividends are fixed, so they do not participate in increases (or decreases) in profits as ordinary shareholders do.

The effect of these is to make the income stream from preference shares more similar to that from debt than that from ordinary shares. Most importantly, fixed dividends are similar to interest payments. However, they are legally shares and are subject to the same tax treatment.

while calculating owners equity.will you include preference shres or not

Nice question and nice answer also:

Preference shares typically have attributes of both debt and equity instruments.

It resembles equity in the following ways:

•  Dividend on these shares are payable out of distributable profits
•  Dividends are not an obligatory payment and are entirely at the discretion of the directors
• Dividends are not tax deductible payment

Preference shares are similar to debt in many ways:

•  Dividend rates are fixed similar to any debt instrument
•  In case the company goes into liquidation, the claim of preference share holders precede the claims of equity share holder
•  Preference share holders normally do not enjoy the right to vote

Originally posted by : CA Pooja Agarwal
	while calculating owners equity.will you include preference shres or not

It Depends on Case by Case.

EveryTime Equity Calculation is Specified. Have Different calculation in Every terms.

While calculating owners equity, preference shres are not included

Schedule six of the Companies Act does not imply that companies have to start classifying redeemable preference shares as per IFRS.

Now What IFRS said :-

As per the International Financial Reporting Standards (IFRS), redeemable preference shares should be shown under the head long-term financial liability on the liability side.

Earlier coporate house annoy that reedemable prefernce shares should disclosre as "Long term liability" instead of clubbing in " Share capital" but Mr. Jain added that it will be disclose as a part of "Share capital" otherwise change would have impacted the bottomlines of companies negatively.

The proposed schedule six is framed in such a way that once the law  is amended, there is no need to further amend the schedule.

Hence both kind of preference should treat as " Equity Capital"

PL ADD IF ANYTHING I FORGET TO SPOT.

my question remains unanswered..."preference share capital forms part of shreholder's fund or will you show it as "outside liabilty"

Originally posted by : CA Pooja Agarwal
	my question remains unanswered..."preference share capital forms part of shreholder's fund or will you show it as "outside liabilty"

Your Query Already Solved by Ashish, & I Will Specify You Again, That Prefrence SC Vary on Conditions While Issuing.

lets take pref share is cumulative

What kind of discussion is this ?

All answers are lie above..

either its is reedemable or non reedemable or cumulative or non cumultive all should group with " Equity Capital' under Shareholder's Group.

As per the International Financial Reporting Standards (IFRS), redeemable preference shares should be shown under the head long-term financial liability on the liability side.

The company law, in contrast, requires them to be classified as equity capital on the liability side.

Can General public subscribe to Preference Shares??

Originally posted by : Damandeep Singh
	Can General public subscribe to Preference Shares??

Yes OffCourse, Provided Shares are listed...

Respected 

Preference share holders can not vote in general meeting, so they are to be treated as "OUTSIDE LIABILITY" because..........

1. Owner's capital/fund means ; "where subseuent to purchase of shares, that person enjoys rights of  ownership"

2. In case of Preference shares , share holder doesn't get the right to vote , so in my opinion it forms part of "OUTSIDE LIABILITY".

3. CONTROVERSIAL ISSUE IS THAT ON PREFERENCE SHARES DIVIDEND IS NOT COMPULSORY; ONLY PREFERENCIAL RIGHT IS GIVEN..... BUT, THAT IS A LAW!!!!!

LAW CAN BE AMENDED AND PREF. DIVIDEND CAN BE MANDATED BY CHANGING THE NAME FROM DIVIDEND TO RETURNS.

4.  BUT PREF. SHARE HOLDERS DON'T HAVE RIGHT TO VOTE; PLUS THY CAN BE OF MAX 20 YEARS' AGE;  SUCH FEATURES  ALLOWS ME TO SAY THIS INSTRUMENT AS LIABILITY!!!