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Hi,
Struggling with a specific question and was wondering if i could get some guidance….
on 31 December 2005 a company issued 1 million $10 5% convertible loan notes and these can be redeemed on 31 December 2008 in the form of cash or equity shares. Similar debt without a conversion option carry interest rates of 8%. The proceeds from the bond issue are currently recorded in loans….
I am expected to make adjustments to SOFP 31 December 2005 and i am struggling with what the adjustments should be, could somebody please help?
Calculate the present value of the future cash flows specifically related to the loan. Compare that total with the face value of the loan, currently included in “loans”
Deduct present value from face value and transfer the difference from “loans” to “equity”
Ok?
Sir,
But in this case if the coupon rate is higher than the discount rate should we do the same? Becuase always in questions coupon rate is lower than discount rate.
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