Convertible Loan Notes

FR – L2 – Q56 – Financial Instruments

Account for convertible loan notes in Tafu Ltd's financial statements for the year to 30 September 20X4.

Question

Tafu Ltd issued GH¢10 million of 4% convertible loan notes on 1 October 20X3, on which interest is paid annually in arrears on 30 September. The loan notes are convertible into equity shares of Tafu Ltd on 30 September 20X6 at the rate of 20 shares in Tafu Ltd for every GH¢100 of notes. Alternatively, the notes can be redeemed on that date for cash at par, at the option of the note holder.
If Tafu Ltd had issued straight loan notes, redeemable at par after 3 years, it would have had to pay interest at the rate of 7% in order to persuade investors to subscribe for them.

Required:
(a) Show how the convertible loan notes would be accounted for in the financial statements of Tafu Ltd for the year to 30 September 20X4.

(b) Comment on the validity of the reasons of the directors for choosing to issue convertible loan notes.

Answer

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Tags: Convertible Loan Notes, Financial instruments, Gearing, IAS 32
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q55 – Financial Instruments

Calculate capital, reserves, and liabilities for Jordana PLC after share issues and preference share transactions in Year 1.

Question

On 1 January Year 1 Jordana PLC has the following capital and reserves.

Equity	GH₵
Share capital (1 million ordinary shares)	1,200,000
Retained earnings	5,670,300
	6,870,300

During Year 1 the following transactions took place.

1 January: An issue of GH₵100,000 8% GH₵1 redeemable preference shares at a premium of 60%. Issue costs are GH₵2,237. Redemption is at 100% premium on 31 December Year 5. The effective rate of interest is 9.5%.
31 March: An issue of 300,000 ordinary shares at a price of GH₵1.30 per share. Issue costs, net of tax benefit, were GH₵20,000.
30 June: A 1 for 4 bonus issue of ordinary shares.
Profit for the year, before accounting for the above, was GH₵508,500. The dividends on the redeemable preference shares have been charged to retained earnings.

Required
Set out capital and reserves and liabilities resulting from the above on 31 December Year 1.

Answer

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Tags: Accounting Standards, Convertible Loan Notes, Corporate Governance, Deferred Tax, Equity, Financial instruments, Financial Statements, Liabilities, Preference Shares, Share Capital
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

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FR – L2 – Q56 – Financial Instruments

Account for convertible loan notes in Tafu Ltd's financial statements for the year to 30 September 20X4.

FR – L2 – Q55 – Financial Instruments

Calculate capital, reserves, and liabilities for Jordana PLC after share issues and preference share transactions in Year 1.

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Tag (SQ): Convertible Loan Notes

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FR – L2 – Q56 – Financial Instruments

Account for convertible loan notes in Tafu Ltd's financial statements for the year to 30 September 20X4.

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FR – L2 – Q55 – Financial Instruments

Calculate capital, reserves, and liabilities for Jordana PLC after share issues and preference share transactions in Year 1.

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