The following notes are made on important principles and concepts I have learned in this chapter:
- Preference share capital is share capital that has preference over the other share capital of an entity. The share capital in chapter 1-4 only consisted of ordinary share capital.
- These preference shares get their dividends paid out first, have no voting rights like in the case of ordinary shares and their dividends are based on an annual fixed percentage.
- Preference shares can either be
- Cumulative – preference shareholders are entitled to the dividends even if the entity does not declare preference dividends for that specific period (can be in arrears for previous years not declared); or
- Non-Cumulative – preference shareholders are not entitled to the dividends if the entity does not declare preference dividends for that specific period (cannot be in arrears for previous years not declared).
- Preference share capital has its own Analysis of Equity.
- In the Analysis of Equity, the preference share capital will only have retained earnings at-acquisition date if the preference shares are cumulative and are in arrears form BEFORE the date of acquisition.
- The preference share capital will also only have retained earnings in the ‘since’-period (from date of acquisition until the beginning of the current period) in the Analysis of Equity if the preference shares are cumulative and are in arrears DURING this ‘SINCE’-period.
- The profit attributable to the preference share capital in the CURRENT period in the Analysis of Equity is the amount of dividends declared for that specific period.
- When distributing the profit for the current period for ordinary shares, the profit (dividend) attributable to preference shares (see point 7 above) must first be taken out of the subsidiary’s total profit so that the remaining profit can go to the parent’s and Non-Controlling Interest’s ordinary shareholders.
- Point 8 is because of the fact that preference shares have a preference over others to get their dividend – form the profit for the year – first (see point 1 and 2).
- Most of the extra calculations from introducing the preference shares are done in the Analysis of Equity – Preference Share Capital, these amounts are then used just like in the case of the Analysis of Equity – Ordinary Share Capital to calculate correct end-balances to be disclosed in the Consolidated Financial Statements of the Group, already shown in the Consolidations Chapter 1-3 entry on this e-portfolio.
- At-acquisition journal entry:
|Preference Share Capital – Opening Balance (S)||x|
|Investment in S Ltd (P)||x|
|Non-Controlling Interest (SCE)||x|