Sir,
Can you please explain the question below?
A company issues $20m of 4% convertible loan notes at par on 1 January 2009. The loan notes are
redeemable for cash or convertible into equity shares on the basis of 20 shares per $100 of debt at the
option of the loan note holder on 31 December 2011. Similar but non-convertible loan notes carry an
interest rate of 9%.
The present value of $1 receivable at the end of the year based on discount rates of 4% and 9% can be
taken as:
4% 9%
$ $
End of year 1 0.96 0.92
2 0.93 0.84
3 0.89 0.77
Cumulative 2.78 2.53
Show how these loan notes should be accounted for in the financial statements at 31 December 2009.
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Financial Assets and Liabilities - BPP question
12y ago#1Apply 9% to discount the value of the loan note and the interest payable. Add up the three years figures. Compare with the loan note face value. The difference is the equity element value and should be included in "Other elements of equity"
Ok?
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