so I have my ACA Financial accounting and reporting exam on Monday and in my mock (which I did pass thank god!) I wrote preference shares down to present value because there was an interest rate given in the question and date they were redeemable..
I understand how to calculate the correct answer now but I've tried looking for an answer WHY it's not written down and when something SHOULD be written down
any explanations would be greatly appreciated
thank you in advance
Replies (2)
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I assume you mean "discounting". Best to keep "write down" for assets.
The answer is presumably in the definition of debt. Have you looked at that?
It's an old trick of examiners to provide you in the question with information you don't need.
I know very little about redeemable preference shares, other than in substance they are debt.
I guess if they are potentially redeemable within a year, as opposed to in X number of years, then they would be a liability due <1 year, and therefore no need to discount.
I could be talking rubbish though.
EDIT: And the reason you discount stuff (if that's what you're asking), is just to account for the time value of money.
If someone owes you £1,000 in 10 years time - that £1,000 will have less buying power in the future, so it's shown at a discounted amount in the current years accounts to reflect that.