Convertible debentures and derivatives – ACCA (SBR) lectures
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could you explain embedded derivatives and how are embedded derivatives accounted for?
thank you!
Hi,
I have the same question as above on the equity element in the scenario of redemption. We debited the liability with 100, but are being left with the 5.2 on equity. Shouldn’t that also be derecognized since the liability & associated option to translate into shares have been closed?
Thank you!
Yes I have the same question. What would happen with the balance of 5.2 in Equity if bond holder doesn’t want to convert to share? Is it that we will reduce the interest expense?
I wish someone had an answer for this question as well. There is a technical article for FR concerning the exact example without explanation what happens to the equity.
I guess, they consider it self evident that we have sold some equity ( by getting better loan terms ). Since we have received the cash we should keep the equity on our books , as well. Debt paid back or converted.
To make things more confusing , I just saw that another example of this by Acowtancy – they don’t leave the equity portion at the end of the loan. They credit P&L ( whatever that means ) when not converted and share capital and share premium ( balancing figure ) when converted.
your answer is different from the answer in lecture notes. PV of liability in the jtes stated 94.8 while in the vid 93.85
Rounding errors.
What happens to the equity element, if the equity element of the debt is never exercised? Does it get derecognised or stay where it is forever?
Good morning Sir,
In the 2nd link you provided there is an example but they only mention about convert of the bond to share. They didn’t show the case of bond redemption. Can you help to explain for us?
Thank you
Hello everyone how did he got the discount factor and present values i’m lost. Thank you
Hi, I think the discount factor he just did 1/1.06 for first year however, for second year Chris did 1/1.06 to power of 2 which i think should have done 2/1.06 to power 2.
yr1 – 1/1.06^1
yr2 – 1/1.06^2
yr3 – 1/1.06^3
You can also use the PV table in AFM to get the discounting values and multiply with cash received (4) to get the PV.
The balance c/f is not nil as I continued calculation. Can you further explain?
bro rounding off issue
It is not rounding error, the remaining balancing at the end of year 3 is around $4m. I wonder if effective rate is not 7.67%. Please explain.
As sir has taken effective rate to be 7.67%, but its 6.34% instead.
Please use the updated version of the study note. Mine also has the 6,34% so changed it to the 7,67%.
Using 6.34% gives a “nil” balance at end of year 3:
yr1: 93.85 + 5.95 – 4 = 95.80
yr2: 95.80 + 6.07 – 4 = 97.87
yr3: 97.87 + 6.20 -104 = “nil”