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Financial instruments.

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Financial instruments.

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by MikeLittle.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • December 3, 2016 at 11:02 am #353386
    seista
    Member
    • Topics: 39
    • Replies: 11
    • ☆☆

    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

    December 3, 2016 at 3:39 pm #353449
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    “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

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