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4) On first April 2013, Xtol issued a 5% $50 million convertible loan note at par. Interest is payable annually in arrears in 31 Match each year. The loan nite is redeemable at par of convertible into equity shares at the option of the loan nite holders on 31 Match 2016. The interest of an equivalent loan note without the conversion rights would be 8% per annum.
The present value of $1 receivable at the end of each year, based on discount rates of 5% and 8%, are:
5%. 8%
End of Year. 1. 0.95. 0.93
2. 0.91 0.86
3. 0.86. 0.79
Ans
Pv of principal 50000×0.79=
39500
Pv of interest inflows 50000×5%×2.58= 6450
Debt component 45950
Liability at 1 4 2013 45950
Effective int 8% 3676
Coupon paid (2500)
Lia at 31.3.2014 47126
Sir my doubt is the finance cost included in p/l is given as 3676-2500.. isnt it just the effective int paid to be included as finance cost in s.P /l
“Sir my doubt is the finance cost included in p/l is given as 3676-2500.. isnt it just the effective int paid to be included as finance cost in s.P /l”
I think that there’s a good chance that you have misinterpreted this line …
“the finance cost included in p/l is given as 3676-2500”
I think that you’ll find that this line relates to the “additional” interest to be added to the $45,950
You are correct that the finance cost in the Statement of Profit or Loss should be $3,676 and the liability on the Statement of Financial Position should be $47,126