Allgo Mining Ltd needs to raise $1,000,000 to finance the acquisition of a new mining equipment. It approached an investment bank that proposed the following two alternatives:

(a) the issue of 8%, cumulative preference shares for $1,000,000 with a fixed redemption

date 5 years from the date of issue (8% cumulative preference shares), or

(b) the issue of 10%, non-cumulative, preference shares for $1,000,000, redeemable at the option of the issuer (10% non-cumulative preference shares).

The preference share issue is planned for 2020. The accountant prepared an abridged projected statement of financial position for Allgo MiningLtd s at 31 December 2020, based on the company's master budget. The projected statement of financial position excludes the effects of the proposed preference share issue or the investment in the new mining equipment.

Extract from Projected statement of financial position of Allgo Mining Ltd as at December 2020 Total Assets 5,000,000 Liabilities 3,000,000 Equity 2,000,000 5,000,000 5,000,000