ACCA FR Syllabus B. Accounting For Transactions In Financial Statements - Debt and Equity - Notes ^{10 / 10}

It is back to the conceptual framework again and also to the important concept of substance over form

The definition of liability includes the need for a present obligation.

As interest MUST be paid but dividends may not, only loans have this obligation and so go to liabilities.

Normal Payable loans

These have an obligation to pay interest and capital

• Debt

Redeemable Preference shares

These have an obligation to pay dividends and capital

• Debt

Irredeemable Preference shares

These do NOT have an obligation to pay dividends and capital

• Equity

Our own shares

These do NOT have an obligation to pay dividends or capital

• Equity

Convertible loans

These do have an obligation but are also potential shares

• Debt and Equity