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Co a issues the convertible loan stock at par. After 4 years, the loan stock may be converted into equity shares on the basis of 20shares per $100 loan stock or then redeemed at par. The market i.rates for similar non-convertible loan stock is 10%.
May I knw the the loan stock can be convertible into 20shares per $100 loan stock will affect which part?
Like first we calculate the present value of liability pymt using cash flows interest 0.6m from y1 to y4 and thn y4 also gt the principal 10m
After tht use proceed received 10m -pv of liability pymt= equity component
Thn use pv of liability + interest 10% – coupon 6% from y1 until 4
=xxxxMay I knw the 20 shares will affect which part?
Thanksand How will it record in SOFP and Income statement?
because it mentions either converted into shares or redeem at par, so how do we know whether they gt convert or not??
Hence, in sofp and income statement, we assume it is converted already or not convert?
If not convert,
income statement: interest expense (use the market for similar- non-convertible bond 10%) + coupon payments (using the 6%)
SOFP includes
non-current liability
loan stock XXXX (liability components)equity
equity components (without including conversion)
If convert,
in income statement, interest expense and coupon payments (still here)
in sofp, the non-current liability- loan stock is disappeared, while the equity part will need to eliminate the original equity components) and then add on the share capital for the conversion and share premium for the conversion.
We should do in which way?
Thanks sir
@arunotes said:
Co a issues the convertible loan stock at par. After 4 years, the loan stock may be converted into equity shares on the basis of 20shares per $100 loan stock or then redeemed at par. The market i.rates for similar non-convertible loan stock is 10%.May I knw the the loan stock can be convertible into 20shares per $100 loan stock will affect which part?
Like first we calculate the present value of liability pymt using cash flows interest 0.6m from y1 to y4 and thn y4 also gt the principal 10m
After tht use proceed received 10m -pv of liability pymt= equity component
Thn use pv of liability + interest 10% – coupon 6% from y1 until 4
=xxxxMay I knw the 20 shares will affect which part?
ThanksHi,
The 20 million shares issued does not impact the initial recognition calculation, so you don’t need to worry about this at FR level. It will be relevant in SBR when you look more at what happens when the convertibles are/aren’t converted.
Thanks
@arunotes said:
and How will it record in SOFP and Income statement?because it mentions either converted into shares or redeem at par, so how do we know whether they gt convert or not??
Hence, in sofp and income statement, we assume it is converted already or not convert?
If not convert,
income statement: interest expense (use the market for similar- non-convertible bond 10%) + coupon payments (using the 6%)
SOFP includes
non-current liability
loan stock XXXX (liability components)equity
equity components (without including conversion)
If convert,
in income statement, interest expense and coupon payments (still here)
in sofp, the non-current liability- loan stock is disappeared, while the equity part will need to eliminate the original equity components) and then add on the share capital for the conversion and share premium for the conversion.
We should do in which way?
Thanks sir
Have you watched the video on convertibles? It looks like you need to do so as a few of your points here are covered.
Thanks
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