On 1 January 20X2 LMN issued $2m 8% convertible debt at par. The debt is repayable, or convertible, at a premium of 20% four years after issue. The effective interest rate for the debt is 12%.
What is the finance charge to LMN’s profit or loss (to the nearest $000) for the year ended 31 December 20X3? (Answer to nearest $000 in the Answer box)
The answer is: 250000. The working is: Year Opening balance Effective interest (at 12%) Interest paid (at 8%) Closing balance $000 $000 $000 $000 20X2 2,000 240 (160) 2,080 20X3 2,080 250 (160) 2,170
I want to ask why the answer do not separate the equity and liability component since the debt is “convertible”?