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Financial instruments - convertible debentures - ACCA Financial Reporting (FR)

VIVA Subject Guide

34 Comments

  1. Kemo
    Hello Chris,
    I hope this message finds you well.
    I just wanted to thank you for your lectures. You delivered the subject in an easy and smooth way.
    Thank you
    EKRAM
  2. Jennifer
    Hi Chris, thank you so much for your lectures God bless you!
    I have a question on the Proceeds
    Why are we multiplying the $1M by 100? I would've assumed we'd do
    1,000,000 x 1,000,000
    Let me know where I'm going wrong
    Thanks!!!!
  3. akshaya
    I agree. Did you figure it out by any chance?
  4. Darel Laurent
    We multiplied 100*1.000.000 because the information in the question says "Alice issued one million 4% convertible debentures at the start of the accounting year at par value of $100 million" This is essentially like saying we have proceeds from debentures worth 100m. Since we issued 1.000.000 debentures, the arithmetical operations would be to devide the 100.000.000 worth of debentures by the number of debentures 1.000.000. that will give us 100$ par value.
  5. Romeo
    the DF i had the first one but i am not getting the rest
  6. fahim231
    These bloody debentchoords
  7. David
    ?
  8. Richard
    Should the question say:
    ... at a par value of $100

    rather than

    ... at a par value of $100 million?
  9. Kat
    Hy Chris,
    I just want to thank you for these beautiful lectures :)
    I now find FR so easy and clear all because of you thank you soooo much from the bottom of my heart! :) you are seriously the best :))
  10. lydia201712
    Hi Chris,

    Love your lecture. You make everything so clear and easy to understand.

    I would like to ask how about the entry after three years with converting as equity and if not. If the debentures have not convert as equity, what is the treatment for the 5.3M equity?

    Thank with love
  11. Jonathan
    Hi Chris,

    Loving your delivery of these lectures. Nice to hear a familiar accent too given I’m from Manchester but living in Australia.

    Where exactly would the 5.3m equity from Yr1 sit in the SFP? Under ‘other’ in the equity section or as a liability?

    Thanks

    Jonathan
  12. P2-D2Tutor
    Hi Jonathan,

    It would sit in the equity section, usually under the title 'Equity option on convertible' or something along those lines.

    Hope Australia is fun.

    Thanks

    Chris
  13. Vicky
    I love this. Thank you very much Chris. This is my favourite lecture so far in ACCA. Perhaps there is a market for ASMR of witnessing an amortised liability schedule clear to nil at maturity. Happy days ahead.
  14. Kartik
    hi, I did not understand the concept of substance of a transaction while discounting at market rate. Can you explain it again?
  15. P2-D2Tutor
    Hi,

    It has been explained in the video, and is effectively saying that if we were to borrow this amount as pure debt, then the interest rate on it would be the market rate of interest.

    Thanks
  16. Anna
    Hi

    I just would like to say that I wouldn't solve any of the examples provided in the study text of BPP without your lecture - the presentation there is rather complicated. Thanks to your job I'm able to solve them all and even if I make a mistake I am able to figure out why. THANK YOU for your time and commitment.
  17. P2-D2Tutor
    Hi Anna,

    It's a pleasure to be able to help and even better when we receive comments like yours above. You've made the start to my Sunday morning a very rewarding one, thank you!

    Good luck with the rest of the studies and if you get stuck then you know where we are to ask any questions.

    Thanks

    Chris
  18. nitas
    the same in my case :) Thank you very much!
  19. koriukov
    Hello guys, if you have got problems with the discounting factor it is calculated using the formula:
    0.943 = 1/1.06
    0.89 = 1/(1.06)^2
    0.84 = 1/(1.06)^3

    https://opentuition.com/acca/f2/acca-f2-discounting-annuities-perpetuities/
  20. Acca student
    Thank you!
  21. Mareez
    Many thanks, confusion was about to set in :)
  22. samimii
    Thank you
  23. Kristina
    Thank you so much!
  24. Paul Daniel
    Thanks a lot man!
  25. Tolu
    Thank you very much
  26. Siddig
    Thank you!
  27. Nosipho
    thank you
  28. Victoria
    Hello!

    Could you explain how did you get DF@6% for Y2 and Y3? (0,890 and 0,840)?

    Thanks in advance!
  29. P2-D2Tutor
    Hi,

    As stated in a previous post, you will be given the discount factors and if you cannot calculate then then you need to go back to F2 (MA) to find the answer.

    Thanks
  30. afuakay
    Discount factor= 1/[(1+r%)^n ]
  31. Aaisha
    Why do we take the market rate of interest in discounting the bond. Is there any logic or its just a rules based approach.

    Also when we do the subsequent measurement, we again use the market rate for Interest charge, while coupon rate is something very low.

    In regular bonds we use the market rate for interest charge because bonds are issued at discount paid at premium, all these costs are incorporated in that market rate and so we use that as interest rate or finance cost of the year.

    But what is the reason for using the market rate as finance cost for convertible bonds.
  32. P2-D2Tutor
    Hi,

    It is because we are looking at the substance of the transaction and if we hadn't issued the debt with the conversion option then the rate of interest would have been the market rate on just the debt alone.

    The coupon rate will be below the market rate as the bond is convertible to equity and therefore the investor can get higher returns in the future from the shares to compensate for the lower coupon rate.

    Thanks
  33. mohsin17222
    You are requested to kindly share the Discount Factor formula?

    Discount Factor = ?
  34. P2-D2Tutor
    Hi,

    You will be given the discount factor in the exam, if you wish to know it then you will need to go back to F2 (MA) where you will be able to find it.

    Thanks

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