[Anthony]

What do I do with the revaluation element of the taxable differences ?

[Anthony]

Yes thankyou what are the entries for the 5m issue costs , are they just credited out of the p&l because the 145m just disappears after the first working ?

[Anthony]

So all that would show on my year end accounts would be the finance cost for the year of $10,497,304 which would also reduce the 150m Dr to the bank.

My carrying amount in liabilities of $138,713,610

And my equity option would stay the same ?

[Anthony]

Ohh no , initial recognition would be
Cr debt 131,216,306
Cr equity option 18,783,694
Dr bank 150m

And then for year 1 it would be
Dr finance cost 10497304 (131,216,306*8%)
Carrying amount of loan on sofp (131,216,306 + 10,497,304 – 3,000,000)
$138,713,610

[Anthony]

Thankyou that makes everything a lot clearer , so basically once the $5 million direct issue costs are removed from the p&l , they then have no further inclusion with any of the workings ?

So for year end 2014 the entries in the accounts would be:
Cr Debt component $131,216,306
Cr Equity component $18,783,694
Dr finance cost £3m
Dr bank $147m ?

[Anthony]

My initial workings was to take the direct issue costs out of the P&L and deduct these from the loan amount to make this £145million.

On the trial balance it shows an interest payment of £3000 (150million*2%) , however with the new amount of !45 million I assumed the interest would now be £2900, obviously we have credited the bank £3000 and I want to debit £2900 to the P&L , where does the remaining £100 get debited, am I on the right lines with the interest payment?

[Anthony]

Sorry, yes there is only one convertible loan, I was getting confused. Could you advise how to work through the question please, if you ignore my other nonsense and this is just the question.

Convertible loan note issued on 1 Jan 14 at its par value. Direct issue costs of £5million were charged to operating expenses. Loan note is redeemable on 31 Dec 2017 at a premium of 10% to compensate for the interest rate of 2% although there is an option to convert the loan into equity shares on, but not before, the redemption date on the basis of 50 equity shares per £100 loan note. The effective rate of interest on the loan note is 8% per annum. The trial balance shows the convertible loan note as £150 million (2%).

Many thanks in advance

[Author]

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