How are mandatory redemption or retractable preferred shares subsequently measured?

Mandatory redemption or retractable preferred shares are subsequently measured at amortized cost using the effective interest method because they are classified as financial liabilities under the financial reporting frameworks, such as IFRS or U.S. GAAP. This classification arises from the obligation to redeem these shares for cash or another financial asset at specified future dates.

Amortized cost represents the amount at which the financial asset or liability is recognized initially, minus any principal repayments, plus or minus any cumulative amortization of the difference between that initial amount and the maturity amount, which is calculated using the effective interest method. This approach is particularly relevant because it reflects the periodic expense recognition associated with the interest payments and takes into account the time value of money.

The effective interest method ensures that the interest expense recorded in the income statement is systematic and reflects the yield on the instrument effectively, providing a more accurate picture of financial performance. Thus, measuring the shares at amortized cost using this method aligns with the principle of recognizing the effects of interest income or expense over the lifespan of the investment or liability.