Interpretation and Application of UK GAAP: For Accounting Periods Commencing On or After 1 January 2015

Chapter 26Liabilities and Equity

1. Introduction
2. Interaction of Financial Liabilities and Equity
3. Ordinary Share Capital
4. Preference Share Capital
5. Revaluation Reserve
6. Dividends
7. Convertible Debt
8. Share Splits
9. Bonus Share Issues
10. Rights Issues
11. Share Premium Account
12. Share Buybacks
13. Treasury Shares
14. Distributable Profit
15. Distributions

Introduction

There are certain transactions that occur in the business world that often lend themselves to some element of deciphering as to whether they should fall to be classed as debt (i.e. as a liability) or as an equity instrument. In some cases a transaction may have to be ‘split accounted’ so as to correctly allocate the transaction between the liability portion and the equity portion. Section 22 Liabilities and Equity gives guidance to preparers of FRS 102 financial statements for classifying financial instruments between liabilities and equity. Section 22 also deals with the issue of when a financial instrument contains a mixture of both debt and equity (referred to in the section as a ‘compound’ financial instrument).

Share transactions can become complicated and Section 22 deals with the issue relating to distributions to owners (shareholders) and how a company deals with accounting for purchases of its own equity. The scope of Section 22 also extends to non-controlling interests (often referred to as ‘minority interests’ in the UK) and how they are to be accounted for in a company's consolidated financial statements.

For share-based payment transactions, ...