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how do i account for it ? And also, could you please explain what you mean by “and with convertible in fixed no of security of variable”? If the issuer is some solid and quickly growing company, then this option is nice for you because you can gain lots of money in the future from increasing share’s price. Hi Silvia, my company is a convertable bond holder, in you article you briefly mentioned from the holder’s perspective that two assets need to be recorded, first the fair vale of the call option, then residual being the value of the receivables, would you please show how to calculate the fair vale of the call option? The 'dividend' is non-discrectionary. For determining the equity and liability they considered 15% market rate of interest. I have two queries. If the issuer’s functional currency is US$ and the notes issued also US$, but the common shares has par value of different currency, is it considered equity instrument in case the note is converted into a fixed number of shares (there is no option to settle in cash)

This post actually made my day. It’s a 3 year $100,000 note and they paid $100,000 for it. The redemption feature tends to set an upper limit on the market price of the stock, since there is little point in bidding the price of a share above its redemption price. With regard to hedging investments in HTM – yes, they can be subject to hedging (or hedged item), and they can both be subject to fair value and cash flow hedge, too. BDO guides consumer businesses as they navigate the complexities of a rapidly evolving marketplace. Company C further foregone interest for 3 months.

The dividend rate can be fixed or floating depending upon the terms of issue. I would like to know from a perspective of the holder. Standard IAS 32 defines compound financial instrument as a non-derivative financial instrument that, from the issuer’s perspective, contains both liability and an equity component. Is it possible to have negative equity? M/s ABC Inc. has issued redeemable preference shares of face value $100 each. The question is what is the journal entries to record the conversion of preference share, to ordinary share? Preference Shares Equity and/Or Liability. Hi Zara, hai Silvia But as I see it, they effectively prepaid for the goods, is that right? I have encountered a situation where the market related interest rate of similar debt instruments with no conversion rights is less than than that of the debt instrument issued. The redemption feature essentially places redeemable preferred stock somewhere on the continuum between equity and debt. The power of industry experience is perspective - perspective we bring to help you best leverage your own capabilities and resources. But i dont know how to download it. All Rights Reserved. I have made an investment in Convertible Debenture at 0% interest rate which will get converted to Compulsory Convertible preference shares after 10 years and the Compulsory Convertible preference shares will get converted in Compulsory Convertible equity shares after another 10 years @ 10% interest rate. I think you are going the right direction.

Any advise is helpful. This is the case. Like you specified, there is difference between Hybrid and Compound Financial Instruments. what account would the 20,617 go to, and how would the year end work?

S. From a lenders perspective how does a loan with interest and ability to share profit at the end loan work ?

what will be journal entries? Hi Sarah, In my opinion, from the investor position, the investment will not be returned in cash therefore classification as loan receivables/held to maturity is not appropriate. The market rate is 8%. If the value of liability+ equity exceeds or is less than the proceeds from the compound instrument, how should the difference be accounted for? Our machines are fully depreciated, but we still use them! He was First I would like to extend my thanks for all Compute the split between equity and liability on 2 January 2015, and finance cost for each year that the preference shares are issued. Please advise:-

My client issued a convertible debenture with 2 years maturity. If the instrument can be designated as FVTPL then do we need to split the conversion option for recognition? Should we adjust the same in the liability component or apply the principles of IAS 39 w.r.t. Should I recognized gain or loss? Also, if the issuing entity is liquidated, the holders of preferred stock are paid off before payments to common stockholders are addressed. Strategies and support for a continuously evolving marketplace. Pieter, I guess it depends on your calculator… S. Can you please help me out in make me understand the accounting treatment of the Compulsory convertible debenture in both the case either with the % of interest or not and with convertible in fixed no of security of variable. I would like you to please through lights on above specified queries. These terms work well for the issuer of the stock, since the entity can eliminate equity if it becomes too expensive. Whether these shares are to be classified as financial liability or equity? Dr. 20,617 From a virtual hot wing eating contest, to running a marathon, we’re proud of our people for finding creative ways…. We've created the BDO Library as a "go to" source for informative and thought provoking knowledge resources. S. Hello, I have a question and it’s about accounting from the holder’s perspective. The preference shares are convertible, at the option of the preference shareholder, into ordinary shares (1 share for every 2 preference shares) on 31 December 2019. However, some restrictions apply to redemption. The difference which should give us the Equity component is now a negative (DR). If not, how would they be treated?

As opposite, holder is someone who acquires compound financial instrument and we can call him “lender”. Hi Silvia 034: How to account for financial guarantees under IFRS 9? I would like to ask from holder’s point of view, if we need to consider fixed conversion ratio or variable cnversion ratio.

DR ??? Why? Secondly, I have used in your essay submitted to the search professorial. IAS 32 outlines the accounting requirements for the presentation of financial instruments, particularly as to the classification of such instruments into financial assets, financial liabilities and equity instruments. BDO is the brand name for the BDO network and for each of the BDO Member Firms. I just wonder to separate as two financial assets to account for.

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