Snape Co has in issue $500 000 6 percent preference shares which are redeemable at the option of the holder. The preference shares have been an issue for over ten years and none of them has ever been redeemed. The company has treated the $30 000 annual payment as a deduction from equity. This treatment is correct, according to IAS 32Financial Instruments: Presentation? 

A. Yes, because shares are equity and the annual payment is a dividend.

B. No, because the annual payment must be separated into dividend and interest components. 

C. No, because the preference shares should be classified as a financial liability and the annual payment is interest.

D.  Yes, because although the preference shares appear to be a liability the substance of the arrangement is that they are equity; in practice, they are unlikely ever to be redeemed.

Answer rating: 100% (QA)

the answer is C According to IAS 32 preference shares that are redeemable at the optio... View the full answer