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convertible loan notes

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

  • This topic has 1 reply, 2 voices, and was last updated 3 years ago by P2-D2.
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  • Author
    Posts
  • February 27, 2022 at 6:42 pm #649473
    ks13
    Participant
    • Topics: 18
    • Replies: 15
    • ☆

    Hi Sir,

    Please could you explain why this is not a true statement: “Including a convertible loan note in equity on the basis that the holders are likely to choose the equity option on conversion is an example of faithful representation”

    Thanks,

    March 3, 2022 at 7:13 pm #649755
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7172
    • ☆☆☆☆☆

    Hi,

    This is because all convertible loan notes are treated as compound instruments where we use split accounting. This happens regardless of the intention of the holders. The faithful representation is shown by using split accounting and recognising both debt and equity.

    Thanks

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