IAS 32 · Case studies (Step 3 of 5)
Case study
Nordval SA (fictitious entity) issued four instruments in 20X6 to finance its development: ordinary shares, two kinds of preference shares and a bond. You prepare the classification note for these instruments at the closing date of 31 December 20X6.
Your assignment
Say whether each item is a financial instrument from the point of view of the issuer; classify each instrument issued as a financial liability or an equity instrument on the basis of its terms; compute the total of the financial liabilities and the total of the equity issued; explain why the right to avoid delivery changes the classification; describe the receivable held from a customer from the point of view of both parties; record the issue of the equity instruments and present the effect on the financial statements; conclude. One document is not useful.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Fundamental level: the method, help and references are shown.
Method
File checklist
4 documents: open each one to read it.
Document 1Memo
Nordval SA (fictitious entity) closes its accounts on 31 December 20X6; its functional currency is the euro. Case conventions: amounts in EUR; the terms of the instruments are those of the documents; case convention (pedagogical assumption, not attributed to IAS 32): no instrument contains a contingent clause or a settlement in own shares.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Ordinary shares (A) | €800,000.00 | |
| Redeemable preference shares (B) | €500,000.00 | |
| Fixed dividend of the B shares | 6% | |
| Preference shares with a discretionary dividend (C) | €300,000.00 | |
| Possible dividend of the C shares | 7% | |
| Bond (D) | €400,000.00 | |
| Interest rate of bond D | 5% | |
| Receivable from Brelin | €150,000.00 | |
| Furniture invoice | €18,500.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Company profile and case conventions
Terms of issue of the shares
Bond and customer receivable
Office furniture invoice
9 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
Is each of the four items a financial instrument from the point of view of the issuer?
Set out the facts, the question raised, then your analysis.
This answer is not marked automatically: after submitting, you will compare it with the solution.
Task 2Professional judgement
Classify each instrument issued as a financial liability or an equity instrument.
Distinguish the case data, the assumption and your judgment.
This answer is not marked automatically: after submitting, you will compare it with the solution.
Task 3Analysis
Compute the total of the financial liabilities issued.
Set out the facts, the question raised, then your analysis.
Part 1 · Calculation
Compute the total of the financial liabilities issued.
This answer is not marked automatically: after submitting, you will compare it with the solution.
Task 4Analysis
Compute the total of the equity instruments issued.
Set out the facts, the question raised, then your analysis.
Part 1 · Calculation
Compute the total of the equity instruments issued.
This answer is not marked automatically: after submitting, you will compare it with the solution.
Task 5Professional judgement
Why does the right to avoid the delivery of cash separate the C shares from the B shares?
Distinguish the case data, the assumption and your judgment.
This answer is not marked automatically: after submitting, you will compare it with the solution.
Task 6Analysis
How is the receivable from Brelin characterised for each of the two parties?
Set out the facts, the question raised, then your analysis.
This answer is not marked automatically: after submitting, you will compare it with the solution.
Task 7Journal entries
Record the issue of the instruments classified as equity (A and C).
Identify the accounts affected and the direction of each movement; check the balance.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 8Effects on the financial statements
What is the effect of the entry on the financial statements?
For each financial statement, state the line affected, the direction and the amount.
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 9Conclusion
Write the conclusion.
Write a conclusion that cites the facts and the treatment chosen.
This answer is not marked automatically: after submitting, you will compare it with the solution.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 13).
Document this file
These working papers use the data and results of this case.
Normative references