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ACCA Applied Knowledge · Financial Accounting · Statement of financial position

Delta Co has 10% redeemable preference shares of $1 each, 300,000 in issue, which must be redeemed in four years and are classified as financial liabilities. Dividends of $30,000 were declared and paid in the year. Ordinary dividends of $50,000 were also paid. How should the preference dividend be treated in Delta's financial statements?

The $30,000 preference dividend is a finance cost in profit or loss, because redeemable preference shares are financial liabilities. Only the ordinary dividend of $50,000 is shown as a distribution in the statement of changes in equity.

  1. AIncluded in finance costs in profit or loss, $30,000Correct
  2. BDeducted in the statement of changes in equity, $30,000
  3. CIncluded in finance costs, $80,000
  4. DShown as an operating expense, $30,000

Explanation

Redeemable preference shares classified as liabilities have their dividends treated as finance costs through profit or loss. Only ordinary dividends of $50,000 go through equity. Including $80,000 wrongly adds the ordinary dividend.

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