Solution-What would be the impact on the debt-to-assets

What would be the impact on the debt-to-assets ratio

Reference no: EM132646493

QUESTION 1: Do you think that a reporting entity would prefer to classify a financial instrument as debt or equity? Why?

QUESTION 2: Wedding Cake Ltd has its shares listed on a securities exchange. It has entered a contractual agreement to issue $10 million of its ordinary shares to Island Ltd in two years' time. The number of shares to be ultimately issued will depend on the market price of the shares in two years' time.

Should Wedding Cake Ltd recognise a financial liability, or an equity instrument, in relation to this agreement?

QUESTION 3: Arthur Ltd has the following statement of financial position

Statement of financial position before set-off
Loans payable	1,000,000	Loans receivable	1,200,000
Shareholder's equity	1,000,000	Non-current assets	800,000
	$2,000,000		$2,000,000

Assume that Arthur Ltd has an amount owing to Blayney Ltd of $300,000 and an amount receivable from Blayney Ltd of $400,000.

Assuming a right of set-off exists, why would Arthur want to perform a set-off? What would be the impact on the debt-to-assets ratio?

Reference no: EM132646493

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What would be the impact on the debt-to-assets ratio

Reference no: EM132646493

Reference no: EM132646493

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