Link with IAS 32

Learning objectives

• Explain the link with IAS 32 for the classification of preference shares and compound instruments.L3

Normative references

• IAS 33 §5Definitions. Ordinary share: an equity instrument that is subordinate to all other classes of equity instruments. Potential ordinary share: a financial instrument or other contract that may entitle its holder to ordinary shares. Options, warrants and their equivalents: instruments that give the holder the right to purchase ordinary shares. Contingent share agreement: an agreement to issue shares that depends on the satisfaction of specified conditions; contingently issuable ordinary shares: shares issuable for little or no cash or other consideration upon the satisfaction of those conditions. Dilution: a reduction in earnings per share (or an increase in loss per share) resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions; antidilution: the opposite effect. Put option on ordinary shares: a contract that gives the holder the right to sell ordinary shares at a specified price for a given period.
• IAS 33 §13All items of income and expense recognised in the period, including tax expense and dividends on preference shares classified as liabilities, are included in profit or loss for the period.

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

1 question

• Sorbier SA has issued preference shares that IAS 32 classifies as a financial liability; their dividends for the year, 120,000, are recognised as an expense. How do these dividends enter the numerator of basic earnings per share?L3