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MARCH/JUNE 2018 – SAMPLE QUESTIONS

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › MARCH/JUNE 2018 – SAMPLE QUESTIONS

  • This topic has 3 replies, 2 voices, and was last updated 6 years ago by P2-D2.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • September 13, 2018 at 3:55 pm #474510
    iyamu
    Participant
    • Topics: 286
    • Replies: 171
    • ☆☆☆

    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
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    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
    Participant
    • Topics: 286
    • Replies: 171
    • ☆☆☆

    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
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    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.

    Thanks

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