Cumulative and non-cumulative preference shares

Learning objectives

• Distinguish the dividend to be deducted for a cumulative and for a non-cumulative preference share, and exclude arrears paid in respect of prior periods.L2, L3

Normative references

• IAS 33 §14Amount of preference dividends to be deducted (after tax): (a) for non-cumulative preference shares, the dividends declared in respect of the period; (b) for cumulative preference shares, the dividends required for the period, whether or not declared; this amount excludes dividends on cumulative shares paid or declared during the period in respect of previous periods.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• Ravenel SA has cumulative preference shares, classified as equity, with a nominal amount of 4,000,000 and a 6% rate. The dividend due for the year is {pref_dividend_due}; the board decided not to declare it this year. The profit attributable to the parent before preference dividends is {profit_parent} (in euros) and the weighted average number of ordinary shares is {weighted_shares}. Calculate the profit attributable to ordinary equity holders and then basic earnings per share. Round earnings per share to two decimals (case convention).L2
• Thalès SA has cumulative preference shares classified as equity. During the year it paid the dividend of {pref_dividend_current} due for that year, as well as {pref_arrears_paid} of dividend arrears relating to the previous year. The profit attributable to the parent before preference dividends is {profit_parent} (in euros) and the weighted average number of ordinary shares is {weighted_shares}. Calculate the profit attributable to ordinary equity holders and then basic earnings per share. Round earnings per share to two decimals (case convention).L3
• Meridian SA has non-cumulative preference shares classified as equity. On 12 February, before the financial statements for the year ended 31 December are authorised for issue, the board proposes a preference dividend of 150,000 for that year; the shareholders are due to vote on it on 20 April. The profit attributable to the parent is 1,350,000 and the weighted average number of ordinary shares is 1,500,000. Write a note determining whether this dividend is deducted from the numerator of basic earnings per share for the year, separating case facts, rule and judgement.L3