Compound instruments

Hi

I am unsure about these as there appears to be a different way to classify these as equity and liabilities. I don’t understand how or why the balance is being split?

On initial recognition the present value of the debt is done by discounting
The cash flows at the market rate and the we deduct the present value of the debt from the proceeds and this gives the difference of equity I think?

You don’t appear to have this in your videos but there is quite a lot in the Kaplan study text in relation to this?