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Hello,
I am going through the Financial Instruments chapter and cannot understand why we discount down a covertible loan but we do not do this with the financial asset raising in the other entity. Can you please advise?
Sara
Hi,
Although you are not going to see this in the exam, from the investing perspective it does not matter whether you have an investment in shares or an investment in debt as both will be shown as an asset investment.
This is obviously different from what we see from the issuers perspective that we see in the exam where the redemption is party for cash (debt) and shares (equity).
Thanks
Thanks but I still do not understand why we only do discount down from the issuer´s side…Can you please explain further?
Hi,
We are discounting down from the issuers side as we are split accounting, treating part of the proceeds as debt and part as equity. The discounting is done to calculate the debt element.
There might be some discounting on the acquisition side depending on the terms of the issue and if the instrument has been issued at a discount or with a premium on redemption but this is unlikely given the equity option.
Thanks
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