Increasing rate preference shares [IAS 33.IE1]
Entity D issued non-convertible, non-redeemable class A cumulative preference shares of €100 par value on 1 January 2013. The class A preference shares are entitled to a cumulative annual dividend of €7 per share starting in 2015. At the time of issue, the market rate dividend yield on the class A preference shares was 7 per cent a year. Thus, Entity D could have expected to receive proceeds of approximately €100 per class A preference share if the dividend rate of €7 per share had been in effect at the date of issue.
In consideration of the dividend payment terms, however, the class A preference shares were issued at €81.63 per share, i.e. at a discount of €18.37 per share. The issue price can be calculated by taking the present value of €100, discounted at 7 per cent over a three-year period. Because the shares are classified as equity, the original issue discount is amortised to retained earnings using the effective interest method and treated as a preference dividend for earnings per share purposes. To calculate basic earnings per share, the following imputed dividend per class A preference share is deducted to determine the profit or loss attributable to ordinary equity holders of the parent entity
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