Lets have another discussion!!

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"

Practically Ultimate truth is that prefs are outside liability because whenever company windup OR close they can claim only their dividend claim, they do not have right to claim share in net assets of company,  &  also they not obligated to pay amount in case of net liability in winding up provided they already paid  full face value... 

While considering various other aspects Prefs have mixed nature(as studied in our course & well explained by ash & ayush )

Regards- Lokesh

They are included in owners fund but not in Shareholders Equity fund.

preference share are outside liablilty but since our companies act (section 85) treat it as capital we have classified it in capital. Also we wont include preference share capital in owners or shareholders equity.

Even IFRS and AS30,31,32(which are not mandatory) non convertible preference shares are treated as liablity.

Preference Shares are included in Shareholders' Fund and as we all know that shareholders are owners of the company according to law. So, Preference Sahres are equity.

I CAN SAY THAT PREFERENCE SHARE IS A HYBRID SOURCE OF FINACE TO THE COMPANY.IT HAS THE FEATURES OF BOTH DEBT AND A PREFERENCE SHARE.BENIFIT OF ISSUING THESE IS  THERE IS NO DILUTION.RISK ON SIDE OF INVESTORS IS RELATIVELY LESS AND THEY GET MATURED AFTER SPECIFIED TIME.TIMELY RETURNS ON THE INVESTMENT IS ALSO THERE FOR PREF INVESTORS.COST OF CAPITAL IS ALSO RELATIVELY LESS TO THE COMPANY.BUT THE COMPANY HAS TO PAY CERTAIN DDT WHILE DECLARING THE DIVIDEND.AND DIVIDEND N PREFERENCE SHARES IS ALSO NOT A TAX DEDUCTIBLE EXPENSE.INDIAN MARKETS HAVE NOT SEEN ANY MAJOR PREF SHARE ISSUE AFTER THE INTRODUCTION OF DDT.