- 5 Marks
FR – May 2016 – L2 – Q3b – Financial Reporting Standards and Their Applications
Show the initial accounting treatment of the bond in accordance with IFRS for Naniama Ltd's convertible bonds.
Question
Naniama Ltd issued 3,000 convertible bonds at par. The bonds are redeemable in 4 years’ time at their par value of GH¢100 per bond. The bonds pay interest annually in arrears at an interest rate (based on nominal value) of 5%. Each bond can be converted at the maturity date into 5 GH¢1.00 shares. The prevailing market interest rate for four-year bonds that have no right of conversion is 8%. The present value at 8% of GH¢1 receivable at the end of:
- Year 1: 0.926
- Year 2: 0.857
- Year 3: 0.794
- Year 4: 0.735
Required:
Show the initial accounting treatment of the bond in accordance with International Financial Reporting Standards (IFRS).
Find Related Questions by Tags, levels, etc.
- Tags: Convertible Bonds, Financial instruments, IFRS, Initial Recognition, Liability vs equity
- Level: Level 2
- Topic: Financial Reporting Standards and Their Applications
- Series: MAY 2016
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