Monetary and non-monetary items

Chapter 20 – Financial Instruments Page 275 6 Treasury Shares If an entity acquires its own shares, they are deducted from equity. Such shares are known as treasury shares. [IAS 32.33] An entity should not recognise any gain or loss made from a transaction involving treasury shares, and any consideration paid or received should be recognised directly in equity. [IAS 32.33] The amount of treasury shares held should be disclosed either in the statement of financial position or in the notes to the financial statements in accordance with IAS 1 Presentation of financial statements. 7 Interest, Dividends, Losses and Gains Where interest, dividends, losses or gains arise in relation to a financial instrument that is classified as a financial liability, they should be recognised in profit or loss for the period. [IAS 32.35] Dividends payable in respect of a financial instrument that is classified as a financial liability are classified as an expense. For example, dividends payable in respect of redeemable preference shares are presented as finance costs in the statement of comprehensive income. They may either be reported as part of interest or presented as a separate line item. Distributions, such as dividends, paid to holders of a financial instrument classified as equity should be charged directly against equity. [IAS 32.35] When equity shares are issued, the transaction costs should be deducted from equity, net of any related income tax benefit. The transaction costs to be deducted are only the incremental costs directly attributable to the transaction that would have been otherwise avoided. [IAS 32.25] Illustration 3 An entity issues 100,000 new CU1 ordinary shares which have a fair value of CU2.50 per share. Professional fees in respect of the share issue are CU50,000. The costs are deductible in arriving at the entity’s income tax liability. The rate of tax is 40. The management of the entity estimates that costs incurred internally for time incurred working on the share issue are CU25,000. The internal costs should be recognised in profit or loss for the period. The professional fees are directly attributable to the transaction and CU30,000 should be deducted from equity CU50,000 net of 40 tax. Equity will increase by CU220,000 100,000 x CU2.50 - CU30,000.