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Trial at 31 march 2017
On 1 April 2016 an 8% convertible loan note with a nominal value of $600,000 was issued at par.It is redeemable on 31 March at par or it may be converted into equity shares of Wellmay on the basis of 100 new shares for each $200 of loan note.An equivalent loan note without conversion option would have carried an interest rate of 10%. Interest of $48000 has been paid on the loan and charged as a finance cost
End of year–8%—-10%
1—————0.93—0.91
2————–0.86—0.83
3————0.79—-0.75
4————0.73—-0.68Pv princpal
(600*0.68)—408
Pv of interest flows
2017)600*8%*0.91=43.68
2018)600*8%*0.83=39.84
2019)600*8%*0.75=36
2020)600*8%*0.68=32.64
debit component-560
equity component-40
cash proceed -500
liability b/f-560
effective finance cost10%-56
cash coupon pay8%—(48)
liability element c/f-568My question here is that, 48 finance cost is deducted from 56 which will be 8 and this only recognised in P/L why not the rest 48 is not included in p/l?It reminds me the question clarion.interest pay of 48 also covers between 2016 and 2017 but in the answer shows that 55 +8+50(substanca in loan-it does not need any explanation i just showed the book shows answer like that)
By the way, in the p/l there is 55 finance cost and probably 48 is inside of 55?COuld you explain it?the answer does not give clear response to me.
“On 1 April 2016 an 8% convertible loan note with a nominal value of $600,000 was issued at par.It is redeemable on 31 March at par”
So, redeemable before it has been issued?
“48 finance cost is deducted from 56 which will be 8 and this only recognised in P/L why not the rest 48 is not included in p/l”
I’m sure that it IS included within the overall Finance Costs in the statement of profit or loss.
In fact, the question actually tells you that “Interest of $48,000 has been paid on the loan and charged as a finance cost”
Do you ever actually read the questions?
By the way, in the p/l there is 55 finance cost and probably 48 is inside of 55?I think i thought the same as you -I’m sure that it IS included within the overall Finance Costs in the statement of profit or loss.But I had to ask.Yea says charged as finance cost it means it is inside of 55.
Thank you very much
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