Question
Merga Bien Ltd issues redeemable preference shares. The shares carry a cumulative 2% dividend. The shares are redeemable for cash if the company makes an
Merga Bien Ltd issues redeemable preference shares. The shares carry a cumulative 2% dividend. The shares are redeemable for cash if the company makes an accounting profit in any year. Merga Bien Ltd is highly profitable for the past 10 years. However, Merga had a huge loss in the 2020-2021 period due to the COVID challenges. Merga pays ordinary dividends at a yield of about 3% annually without fail for the past 10 years. The market interest rate for the long-term debt at the time the preference shares were issued was 5% p.a. Required: Question 13 10 pts ings Given this scenario, explain whether Merga Bien has a financial liability, equity instrument or both. Note you are not required to calculate any amount.
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