Ifrs insight convertible securities under ifrs unlike

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IFRS INSIGHT Convertible Securities under IFRS Unlike GAAp, convertible securities (called compound financial instruments under IFRS) are split into separate debt and equity components. The idea is that the conversion premium is akin to a call option on the company's stock. This embedded option has a value of its own even if it is not legally detachable. Thus, under IFRS, the proceeds from the issuance are allocated between the liability component (at fair value) and an equity component (the residual amount).
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8-29 Module 8 I Equity Recognition and Owner Financing ANALYZING GLOBAL REPORTS Under IFRS, accounting for equity is similar to that under U.S. GAAP. Following are a few ter- minology differences: U.S. GAAP 'i IFRS Common stock Preferred shares Additional paid-in capital Retained earnings Accumulated other comprehensive income Share capital Preference shares Share premium Reserves Other equity or Other components of equity Revaluation surplus or Revaluation reserve' • In Modules 6 and 9, we noted that certain assets including fixed assets and intangible assets may be revalued upwards (and later, revalued downwards) under IFRS. These revaluations do not affect net income or retained earnings but, instead, are reported in a separate equity account. For comparative purposes our analysis might exclude revaluations from both equity an; the asset accounts to which they relate. U.S. GAAP has a more narrow definition of liabilities than TFRS. Therefore, more items classified as liabilities under IFRS. For example, some preferred shares are deemed Iiabiliti under IFRS and equity under GAAP. (Both systems classify preferred shares that are mandaro- rily redeemable or redeemable at the option of the shareholder, as liabilities.) For comparative purposes, we look at classification of preferred shares that are not mandatorily redeemable make the numbers consistent. To do this we add preference shares classified as liabilities un IFRS to equity. Treasury stock transactions are sometimes difficult to identify under IFRS because co rues are not required to report a separate line item for treasury shares on the balance sheet. Ins treasury share transactions reduce share capital and share premium. We must review the state of shareholders' equity to assess stock repurchases for IFRS companies. For example, at March 31, 2011, British Telecom (BT) reports the following in the eq - section of its IFRS balance sheet (in £ millions): Ordinary shares . Share premium . Capital redemption reserve . Other reserves . Retained earnings . Total parent shareholders' equity . £ 408 62 27 658 770 £1,925 Its balance sheet reports no treasury stock line item, but footnotes disclose that the other r, account (£658 million) includes the following: 1(£ minion} Treasury shares At 1 April 2010 .
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