Difference in the treatment of loan notes and convertible loan

HH4y ago

Hello I dont understand as to why when we deal with loan notes..the loan is recognised at the amount received initially and not at discounted present value. But when we calculate the convertible loan..the loan's future payments are discounted and then recognised as initial value. Why this difference if they both are types of loan.

PP2-D2Tutor4y ago#1

Hi, When accounting for the convertibles we are accounting for them based on substance, where we use split accounting to recognise a part debt and a part equity. This is an entirely different treatment to where we just have pure debt as is the case of the standard loan notes. Here we recognise it as a debt instrument at fair value (usually the present value of the cash flows). Thanks