IAS 32 · Case studies (Step 3 of 5)
Case study
Mavrel SA (fictitious entity) in 20X6 bought back and then partly resold its own shares, declared a dividend on its ordinary shares, recognised the dividend of its redeemable preference shares, and issued together ordinary shares and redeemable preference shares with common costs. You prepare the entries and their effect on the financial statements.
Your assignment
Record the buyback of own shares; compute the cost and the proceeds of the shares resold and then the difference, and record the resale; record the dividend on the ordinary shares and compute and record the dividend on the preference shares classified as a liability; allocate the common issue costs between the two instruments on the basis of the proceeds (case convention), compute the net amount in equity and record the costs charged to equity; place the tax effect of distributions; present the effects on the financial statements and conclude. There is no workpaper.
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.
Advanced level: no help, the work is grouped by kind.
6 documents: open each one to read it.
Document 1Memo
Mavrel SA (fictitious entity) closes its accounts on 31 December 20X6. Case conventions: amounts in EUR; all the shares reacquired have the same unit cost; case convention (pedagogical assumption, not attributed to IAS 32): the common costs are allocated on the basis of the proceeds of the two instruments issued together; the tax effect is ignored; the entries are illustrative.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Shares bought back | 20,000 units | |
| Buyback price per share | €15.00 | |
| Shares resold | 12,000 units | |
| Resale price per share | €18.00 | |
| Dividend declared on the ordinary shares | €120,000.00 | |
| Redeemable preference shares | €500,000.00 | |
| Fixed dividend of the preference shares | 6% | |
| Proceeds of the issue of the ordinary shares | €1,500,000.00 | |
| Common issue costs | €90,000.00 | |
| Training invoice | €7,400.00 |
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
Buyback and resale of own shares
Dividends declared
Joint issue and common costs
Tax effect of distributions
Training invoice
16 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
Compute the total cost of the shares bought back.
Part 1 · Calculation
Compute the total cost of the shares bought back.
Task 2Journal entries
Record the buyback of own shares.
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 3Analysis
Compute the proceeds of the resale of the treasury shares.
Part 1 · Calculation
Compute the proceeds of the resale of the treasury shares.
Task 4Analysis
Compute the cost of the treasury shares resold.
Part 1 · Calculation
Compute the cost of the treasury shares resold.
Task 5Calculation
Compute the resale difference to be recorded in equity.
Part 1 · Calculation
Compute the resale difference to be recorded in equity.
Task 6Journal entries
Record the resale of the treasury shares.
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
Line 3
Task 7Effects on the financial statements
What is the effect of the buyback and the resale on the financial statements?
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 8Journal entries
Record the dividend declared on the ordinary shares.
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 9Calculation
Compute the dividend on the preference shares classified as a liability.
Part 1 · Calculation
Compute the dividend on the preference shares classified as a liability.
Task 10Journal entries
Record the dividend on the preference shares.
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 11Calculation
Allocate the common issue costs: what part is charged to the ordinary shares?
Part 1 · Calculation
Allocate the common issue costs: what part is charged to the ordinary shares?
Task 12Calculation
Compute the net amount recorded in equity for the ordinary shares.
Part 1 · Calculation
Compute the net amount recorded in equity for the ordinary shares.
Task 13Journal entries
Record the issue costs charged to equity.
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 14Effects on the financial statements
What is the effect of the dividends and the issue costs on the financial statements?
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 15Analysis
Which standard deals with the income tax effect of distributions?
Task 16Conclusion
Write the conclusion.
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 / 22).
Normative references