March / June 2018 #32 – Haverford

Hi
I found something different between the opentuition revision video and the answers.

Q: (i) On 1 January 20X7, Haverford Co issued 80,000 $100 4% convertible loan notes. The loan notes can be converted to equity shares on 31 December 20X9 or redeemed at par on the same date. An equivalent loan without the conversion rights would have required interest of 6%. Interest is payable annually in arrears on 31 December each year. The annual payment has been included in finance costs for the year. The present value of $1 receivable at the end of each year, based on discount rates of 4% and 6%, are:
4% 6%
End of year 1 0·962 0·943
End of year 2 0·925 0·890
End of year 3 0·889 0·840

(a) Calculate the adjusted profit for Haverford Co for the year ended 31 December 20X7.

The teacher in the video subtracst the finance costs of $455K from the Draft profit of $2,250K but the answer says that the finance costs of $135K is subtracted from the Draft profit. Can you please tell me which one is correct and explain in detail why you select the correct one?

Thanks.