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Convertible Bonds

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Convertible Bonds

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by P2-D2.
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  • Author
    Posts
  • July 30, 2021 at 9:53 pm #629886
    fahad15500
    Participant
    • Topics: 2
    • Replies: 0
    • ☆

    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.

    August 1, 2021 at 9:47 am #630011
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6453
    • ☆☆☆☆☆

    Hi,

    A good spot, yes you could classify them as current as opposed to non-current.

    Thanks

  • Author
    Posts
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