Reference no: EM132821250

Question - AfroAir (AA) Ltd an airline operating regionally in the SADEC area but domiciled in Windhoek, Namibia has overtime been dealing with financial constraint and on the verge of going under. In order to salvage the situation, the board of AA met late in 2019 and decided to raise funds from the Namibian Stock Exchange to the tune of N$10 million. The managing director of AA instructed the CFO to raise the capital in a combination of instruments that he considered of optimal benefits to the business. The following instruments were then approved and issued;

1. Issued 4 million $1 cumulative redeemable preference shares on 1 January 2020 at their par value. The shares carry a fixed coupon rate of 6%, which is payable annually in arrears. They are redeemable on 31 December 2023 at a premium of $300 000. AA incurred a transaction cost on 1 January 2020 of 1% of the issue proceeds.

2. On the same 1 January 2020, AA issued 600 000, N$10 zero coupon debentures at N$9 each. The debentures are compulsorily redeemable on 31 December 2023 at N$13.18 each.

The financial year end of AA is 31ts December each year. Ignore tax.

How much liability is to recognised with respect to the Preference share on the date of issue?