You are the management accountant of Short. On 1 October 2023 Short issued 10 million GHS1 preference shares at par, incurring issue costs of GHS100,000. The dividend payable on the preference shares was a fixed 4% per annum, payable on 30 September each year in arrears. The preference shares were redeemed on 1 October 2028 at a price of GHS1.35 per share. The effective finance cost of the preference shares was 10%. The statement of financial position of the entity as at 30 September 2028, the day before the redemption of the preference shares, was as follows:

GHS

Ordinary share capital (non-redeemable)

Redeemable preference shares 13.5 Share premium account 25.8 Retained earnings 59.7

199.0 Total equity 199.0

Requirements

(a) Write a memorandum to your assistant which explains:

how the total finance cost of the preference shares should be allocated to the income statement over their period of issue;

Your memorandum should refer to the provisions of relevant accounting standards.

(b) Calculate the finance cost in respect of the preference shares for each of the 5 years ended 30 September 2028.