- This topic has 5 replies, 2 voices, and was last updated 11 years ago by
.
-
Posts
-
Sir is compound financial instrument like convertible loan measured at amortised cost or fair value?
I read in bpp textbook that the options to convert is deemed not to represent contractual cash flow of principal & interest.(not amortised cost) But the method we use to split equity & liability component in convertible loan is by discounting future cash flow to present value (like effective interest method for amortised cost).
You’re correct in everything you say and therefore you’re looking at fair value!
So does it mean that fair value & amortised cost is arrived by using the same method namely discounting future cash flow to present value?
In the exam I believe that the examiner will tell you fair value. I have no idea how you would arrive at fair value in practice other than by discounting future flows using the company’s cost of capital
Sorry not to be more definitive 🙁
- You must be logged in to reply to this topic.