Convertible Bonds

Test your understanding 3 An entity issues 2% convertible bonds at their nominal value of $36,000. Interest is payable annually in arrears. The bonds are convertible at any time up to maturity into 40 ordinary shares for each $100 of bond. Alternatively the bonds will be redeemed at par after 3 years. Similar non-convertible bonds would carry an interest rate of 9.1%. The present value of $1 payable at the end of year, based on rates of 2% and 9.1% are as follows: End of year 2% 9.1% 1. 0.98 0.92 2. 0.96 0.84 3. 0.94 0.77 Q. What amounts will be shown in the statement of profit or loss and statement of financial position for years 1-3? Work to the nearest $000. Solution in Kaplan Study Text shows the bond’s outstanding value in non-current liabilities at the end of year 2 where as the question says the bonds will be redeemed at par after 3 years. So my question is isn’t the bond supposed to be shown in current liabilities of year 2 instead of being shown in the non-current liabilities. Because the outstanding time period at 2nd year end becomes 12 months.