Which of the following statements is incorrect?
A) A redeemable preference share that is redeemable by the holder is classified as equity if it is not probable that redemption will occur.
B) A redeemable preference share with a fixed redemption date is classified as debt.
C) Sole proprietorships, partnerships and limited companies can all raise equity finance from owners' contributions but only limited companies can issue ordinary shares.
D) A company distributes profits in the form of dividends, which is a reduction in retained profits, whereas distributions of profits by partnerships and sole proprietors are reductions in owners' equity.

Question

Quizplus · Accepted Answer

A redeemable preference share that is redeemable by the holder is typically classified as a financial liability (debt) rather than equity, regardless of the probability of redemption. This is because the company is obligated to pay the holder at their request or at a specified future date, which creates a financial liability for the company.

Which of the Following Statements Is Incorrect