Topic 5 - Accounting for Equity and Debt Overview Flashcards Preview

AFM211 Financial Accounting > Topic 5 - Accounting for Equity and Debt Overview > Flashcards

Flashcards in Topic 5 - Accounting for Equity and Debt Overview Deck (4)
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1
Q

Entities usually prefer to have:

  • High levels of owners equity
  • Low levels of debt

This preference occurs because:

-

-

Next, name the two types of distributions.

A
  • entities are less likely to breach debt covenants if their debt is lower
  • entities preserve their ability to take on additional debt in the future
  • distributions to owners equity holders are classified as dividends (distribution of profits) whilst distributions to debt holders are classified as expenses
2
Q

For some items, it is difficult to decide if they should be treated as owners equity or debt.

Name two examples.

What is the decision based on?

A
3
Q

The accounting decision for redeemable preference shares is difficult because these shares may:

A
4
Q

Convertible notes are liabilities that can either (or must) be converted to equity at a later date.

If the conversion is:

-

-

-

A