- July 30, 2021 at 9:53 pm #629886fahad15500Participant
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Test your understanding 3
An entity issues 2% convertible bonds at their nominal
$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.August 1, 2021 at 9:47 am #630011P2-D2Keymaster
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A good spot, yes you could classify them as current as opposed to non-current.
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