Accounting theory and practice Speech or Presentation

Accounting theory and practice - Speech or Presentation Example Q1 (I): since the preference share is short-lived (it is to be redeemed in 2013, thus not a permanent source of capital), it can be classified under temporary equity. The following journal entries should be made in 2010, 2011, 2012 and 2013 (Swart 2002, pp. 140-176). Q1 (II): the preference shares are redeemable and the shareholders have exclusive rights to dividends (2%) of the par value. Therefore, it is treated as a debt and would be recorded as below in the financial statements (Swart 2002, pp. 140-176) In the above process of determining the amortized costs, the cash flow = (2%*25M) except for the year 2013, which contains the principal amount (25M) plus the cash flow (500,000). Second, the cash flows are discounted using the presumed interest rate of 10% to get the opening amount (18,659,900). In the row marked 2010, the opening amount is multiplied by 10% to get the interest payable (1,865,990). The difference between interest payable and cash flow for that year is added to the opening for that year, to get the closing amount (20,025,890). The closing amount for 2010 becomes the opening amount for 2011. Follow the same process up to year 2012. Since the shares are redeemed in the year 2013, there will not be a closing amount for the year. Part B: the general accounting rules require that financial items be treated as liabilities if it obligates a company to part with cash or other financial assets. Secondly, if the issuer (a company), has no control over factors that leads to its maturity date. Lastly, if the requirement to pay principal amount may induce a contractual obligation to pay interest on dividends. However, the internal accounting standard has done major reviews on the mentioned regulations to include other emerging issues. The review of the rules regulating the accounting treatment of liabilities paved way