MARCH/JUNE 2018 – SAMPLE QUESTIONS

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September 13, 2018 at 3:55 pm #474510
iyamu
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Please, i have gone through where i made some mistakes but could you assist me as to where the convertible option figure become 424k.

The answer says As the full amount of $8m has been taken to liabilities , adjustment required is;

Dr Liability $424k
Cr Equity $424k.
September 15, 2018 at 9:00 pm #474690
P2-D2
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Hi,

For convertible debt we use split accounting, so recognise both debt and equity on initial recognition. As the full amount of $8m has been recognised as debt, which is incorrect, then the $424k needs to be removed from liabilities and correctly shown as equity.

Thanks
September 17, 2018 at 11:30 am #474993
iyamu
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Exactly but how did they arrive at $424k ? I am trying to figure it out but i could not . could you please assist?
September 19, 2018 at 10:05 pm #475323
P2-D2
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The amount recognised in equity is the difference between the proceeds and the amount recognised as a liability, which is the present value of the cash flows, discounted at the rate of interest assuming that it was a 100% loan.

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