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December 20×9 Question 2 Sandown Note 3

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › December 20×9 Question 2 Sandown Note 3

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by MikeLittle.
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  • November 14, 2016 at 1:55 pm #348921
    gabbi08
    Member
    • Topics: 135
    • Replies: 181
    • ☆☆☆

    Dear Mike,

    I still have difficulties to understand the logic how the note 3 has been answered.
    I watched the video, but unfortunately the solution is still no clear to me.

    Probably I get confused when the question saying the “the 5% convertible loan note was issued for procceds of $20M.

    When first answering the question I use $20M as nominal value of the loan which sounds not being correct.

    Could you please help?

    Thanks

    Gabriella

    November 14, 2016 at 4:42 pm #348943
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22705
    • ☆☆☆☆☆

    No, you are correct – the loan note does have a nominal value of $20,000

    But it’s a convertible loan note so there is an element of debt (most of the $20,000) but there’s also an element of equity

    What you need to do is find the present value of the minimum cash payments associated with servicing the loan, deduct that present value from the $20,000 and the missing figure is the equity element

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