Cosmic Limited is a company with a 31 December financial year-end.

On 1 January 2019, the company issued a debt instrument with the following terms:

• 100 000 Class C shares were issued.

• The shares were issued at R10 each.

• An interest (coupon) rate of 6% per annum is applicable, and interest is payable annually on 31 December.

• The shares have no voting rights.

• The shares are redeemable on 31 December 2023 at a premium of 10%.

The following figures related to the debt instrument for the 31 December 2020 year:

Opening balance                                R1017       143

Dividend expense for the year           R78        465

REQUIRED:

1) Motivate whether the shares should be accounted for as equity or liability.

2) Prepare the note disclosure for the debt instrument to be included in the financial statements of Cosmic Limited for the financial year ending 31 December 2020. Comparative amounts are not required.

Answer rating: 100% (QA)

1 The shares should be accounted for as equity because they ha... View the full answer