On November 1, 2016, BIUC issued 2,000 redeemable and retractable preferred shar

Question

On November 1, 2016, BIUC issued 2,000 redeemable and retractable preferred shares at a value of $10 per share. The shares are redeemable by BIUC at any time after January 2021, they are retractable for the original $10 per share at the discretion of the holder at any time up to January 2021, after which the retractable feature expires. The preferred shares require the payment of a mandatory $2 per share during the retraction period, after which the dividends become non-cumulative and are paid at the discretion of the board only.

how do you account for this?

Explanation / Answer

From a US GAAP point of view, which I believe is the identical/much like IFRS (I've examined the diversities between the 2 before and i'm no longer recalling this situation coming out), the fact that it can be redeemable/retractable is most likely important to the proper accounting healing.

I might always start through asking myself a simple question: Is it mandatorily redeemable or now not? If this is the case, all bets are off and it is to be provided as a legal responsibility.

I do not see how these shares would be viewed mandatorily redeemable (i.E. The obligation to transfer assets ought to be unconditional), so i would no longer report a legal responsibility on the time of issuance. Just due to the fact a redemption characteristic exists does no longer make it field to ASC 480.

It seems now we have a CONDITIONAL redeemtion characteristic here. The gigantic query is, by means of WHOM, the company/provider or the holder?

If the redemption characteristic was solely (& I do imply exclusively) underneath the manipulate of the supplier, that you can reward it as permanent equity, even for a U.S. Public manufacturer.

If no longer, it is regarded a, "debt security," but that does not necessitate liabiilty presentation, it just way it can not be recorded as permanent equity.

Here, DPI can (completely) redeem these shares, but most effective AFTER Jan 2015. Prior to that, these shares are retractable, which my working out of that signifies that the investor/holder of the securities can put the shares back to the corporation for $10/share. This isn't under the manipulate of the corporation. (be aware: i might need to examine the genuine contract to see how these, "retractable" shares fairly work)

As such, pursuant to SEC principles, these shares are not able to be incorporated as permanent equity. This means i'd exhibit this as "mezzanine" fairness (between debt and fairness on the face of the stability sheet), which is an SEC reporting notion and has no analog underneath GAAP rules.

As such, I don't suppose that everlasting fairness is the right reply here.

Be aware: A nonpublic company is also competent to get away with displaying this as permanent equity, however i do not trust that sentiment.

This particularly is a experiment query? I in finding this query a long way past what i would want to teach in college.

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