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  • 15 Marks

FR – May 2017 – L2 – SB – Q5 – Preparation of Financial Statements

Discuss distinguishing features of debt and equity presentation under IFRS and explain the impact of classification on financial statements.

The difference between debt and equity in an entity’s statement of financial position is not easily distinguishable for preparers of financial statements. Debts and equity financial instruments may have similar characteristics, which may lead to inconsistency of reporting.

Required:

  1. Discuss the main distinguishing features in the presentation of debt and equity under International Financial Reporting Standards (IFRS) with clear examples.
    (10 Marks)
  2. Explain why it is important for entities to understand the impact of the classification of a financial instrument as debt or equity in the financial statement.
    (5 Marks)

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  • 15 Marks

FR – May 2024 – L2 – SB – Q6 – Financial Instruments (IAS 32)

Discuss how to treat transactions of debt and equity instruments in Akwa Nig. Limited under IAS 32.

Akwa Nig. Limited is a private limited company planning to be registered with the Nigeria Exchange Limited (NGX). The company is engaged in the conversion of petrol engines into compressed gas engines.

The following are the transactions of the company in respect of its debts and equity instruments.

Transaction 1:
Akwa Nig. Limited issued 40 million non-redeemable N1 preference shares at par value. Under the terms relating to the preference shares, a dividend is payable on the preference shares only if Akwa Nig. Limited also pays a dividend on its ordinary shares for the same period. (5 Marks)

Transaction 2:
Akwa Nig. Limited entered into a contract with a supplier to buy a significant item of equipment. Under the terms of the agreement, the supplier will receive ordinary shares with an equivalent value of N5 million one year after the equipment is delivered. (5 Marks)

Transaction 3:
The directors of Akwa Nig. Limited, on becoming directors, are required to invest a fixed agreed sum of money in a special class of N1 ordinary shares that only directors hold. Dividend payments on the shares are discretionary and are ratified at the Annual General Meeting (AGM) of the company. When a director’s service contract expires, Akwa Nig. Limited is required to repurchase the shares at their nominal value. (5 Marks)

A senior accountant in your company (Akwa Nig. Limited) has asked for your advice on how the above transactions should be treated in the financial statements of your company in accordance with IAS 32 – Financial Instruments: Presentation.

Required:
Write a memo on the above request, discussing and justifying how each of the transactions should be treated in the financial statements, in accordance with IAS 32 – Financial Instruments: Presentation.

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  • 15 Marks

FR – May 2017 – L2 – SB – Q5 – Preparation of Financial Statements

Discuss distinguishing features of debt and equity presentation under IFRS and explain the impact of classification on financial statements.

The difference between debt and equity in an entity’s statement of financial position is not easily distinguishable for preparers of financial statements. Debts and equity financial instruments may have similar characteristics, which may lead to inconsistency of reporting.

Required:

  1. Discuss the main distinguishing features in the presentation of debt and equity under International Financial Reporting Standards (IFRS) with clear examples.
    (10 Marks)
  2. Explain why it is important for entities to understand the impact of the classification of a financial instrument as debt or equity in the financial statement.
    (5 Marks)

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  • 15 Marks

FR – May 2024 – L2 – SB – Q6 – Financial Instruments (IAS 32)

Discuss how to treat transactions of debt and equity instruments in Akwa Nig. Limited under IAS 32.

Akwa Nig. Limited is a private limited company planning to be registered with the Nigeria Exchange Limited (NGX). The company is engaged in the conversion of petrol engines into compressed gas engines.

The following are the transactions of the company in respect of its debts and equity instruments.

Transaction 1:
Akwa Nig. Limited issued 40 million non-redeemable N1 preference shares at par value. Under the terms relating to the preference shares, a dividend is payable on the preference shares only if Akwa Nig. Limited also pays a dividend on its ordinary shares for the same period. (5 Marks)

Transaction 2:
Akwa Nig. Limited entered into a contract with a supplier to buy a significant item of equipment. Under the terms of the agreement, the supplier will receive ordinary shares with an equivalent value of N5 million one year after the equipment is delivered. (5 Marks)

Transaction 3:
The directors of Akwa Nig. Limited, on becoming directors, are required to invest a fixed agreed sum of money in a special class of N1 ordinary shares that only directors hold. Dividend payments on the shares are discretionary and are ratified at the Annual General Meeting (AGM) of the company. When a director’s service contract expires, Akwa Nig. Limited is required to repurchase the shares at their nominal value. (5 Marks)

A senior accountant in your company (Akwa Nig. Limited) has asked for your advice on how the above transactions should be treated in the financial statements of your company in accordance with IAS 32 – Financial Instruments: Presentation.

Required:
Write a memo on the above request, discussing and justifying how each of the transactions should be treated in the financial statements, in accordance with IAS 32 – Financial Instruments: Presentation.

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