Standard debentures and convertible loans

ASalawi sayed4y ago

Hello Sir, I just have some confusion about the treatment of the standard debentures (not convertible)and the convertible debentures , in your lectures for the * standard debentures you just took the net proceeds and accrue the effective rate on it and deducted the coupon rate * but for the convertible debentures you made a discounting to the cash flows and got the present value for the accounting of the liability So what is the distinction here about doing the discounting we made discounting for the convertible notes but not the standard one , how to approach this matter when we have to discount and when we should not, Thanks,

P2-D2Tutor4y ago#1

Hi, The distinction is that for the convertibles we are initially performing split accounting to show the debt and equity element within the instrument. In the straight debt instrument then we do not need to do the split accounting as there is no equity element within it, hence no discounting. Thanks

ASalawi sayed4y ago#2

Hello Sir, But for the recognition of the liability in SFB regarding straight debt instrument how are going to show the liability, because in most liability cases like for future payment of the capital in case of acquisition we take the present value of the debt so here why we don't. Thanks for your help.

P2-D2Tutor4y ago#3

Hi, You recognise the debt at the proceeds less the issue costs, which will bot be given in the question. The proceeds are usually the present value of the future cash flows but you do not need to work this out given that you have been given this figure already. Thanks

ASalawi sayed4y ago#4

Then it is ok if they have already given the present value, Thanks ,

P2-D2Tutor4y ago#5

Yes, if you have the present value then that it what will have been paid/received so is what you should use. Thanks

ASalawi sayed4y ago#6

Thanks

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