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- February 19, 2017 at 12:35 pm #373143
Sir, I have a few general questions regarding this chapter.
If loan notes are issued 5 years back which were to be paid after 6 years from the date of issue, will the loan notes be shown as current liability then?
Supposing if the company gave an option to convert their convertible bonds to be converted to shares in mid year, how will this be recorded in financial statements?
Is the practice of identifying the equity element of a convertible bonds done only in the first year or is it done annually?
Thanks
February 19, 2017 at 12:58 pm #373147“If loan notes are issued 5 years back which were to be paid after 6 years from the date of issue, will the loan notes be shown as current liability then?”
If they are repayable within the next 12 months, yes, they will be shown as a current liability
“Supposing if the company gave an option to convert their convertible bonds to be converted to shares in mid year, how will this be recorded in financial statements?”
What happens if the holders don’t exercise their option to convert? If they choose not to convert I assume that the notes will be repaid
The conversion date(s) should ideally not coincide with the year end (although it doesn’t really matter)
As at the year end, or on conversion date, the entity will know how many holders have exercised their option so should be able to account for that with ‘normal’ double entry
And if they haven’t chosen to convert, then maybe it’s a rolling option … “convertible on 31 March for each of the next 5 years”
In that case, up until the first conversion date, the entity will record the notes as a liability and make full disclosure within the notes to the financial statements
Once we have arrived at that first conversion date opportunity, again a fully detailed note will explain the situation showing how many $ worth of loans have been converted and maybe a ‘reasonable estimate’ of the remaining value that is expected to convert next year
“Is the practice of identifying the equity element of a convertible bonds done only in the first year or is it done annually?”
This one I cannot answer definitively but, given that disclosure notes to financial statements are intended to leave the reader fully acquainted with all material facts, I can think of no good reason why the situation would not be fully explained each year
OK?
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