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convertible loan

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › convertible loan

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by P2-D2.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • August 1, 2018 at 4:05 pm #465554
    adarsh1997
    Participant
    • Topics: 646
    • Replies: 282
    • ☆☆☆☆

    Hello Chris!

    Need your help to tackle a question (SANDOWN note 3)

    In the trial balance as @ 30 Sep 2009, there i
    -5% convertible loan note 2012 $18,440
    -Equity options $2000

    -The 5% convertible loan note was issued for proceeds of $20M on 1 Oct 2007. It has an effective interest rate of 8% due to the value of its conversion option, and can be converted into 50 shares for every $100 owed.

    1. I’ve calculated the minimum cash payments associated with associated the loan which is $15,435.00 deduct that present value from the $20,000 and got $4,565.00 equity

    2.How come in the question,they’ve got $18,440 as the and $2000?

    August 1, 2018 at 8:21 pm #465618
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7171
    • ☆☆☆☆☆

    Hi,

    You don’t need to calculate the present value of the minimum payments and then work out the equity as a balancing figure as this has already been done for you.

    If you not the dates, the reporting date is September’09 and the convertible was issued two years ago on 1 October’07, so they’ve recorded it correctly initially.

    All you need to do in answering the question is to record the interest expense at 8% on the outstanding liability and work out the value in the SFP.

    Thanks

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