Question

On January 1, 2015, Ginseng Corp. issues $1,000 of 5% bonds which may be converted into total 1,000 shares of $1 par value ordinary shares. The market rate of interest is 7%. Interest is payable annually on December 31, and the bonds were issued at par. The maturity date is December 31, 2019.

Please answer the following questions.

(1) Prepare the journal entry on January 1, 2015, based on US GAAP and IFRS, respectively.

Answer 1

Please follow Step by Step .. How Bind price convert into Equity and calculate PV ( present value ) - formula update in the answer below . Calculate Coupon rate with discounted value + terminal Value ( Original issue Price ) * Discount factor at 5th Year   

January'1-2015
Ginseng Corp
Issue $1000 of 5% bond- converted into 1000 shares @$ 1 per value of share
The market rate of Interest	7%
Interest is payable - annually 31st Dec
Maturity Date	31st Dec 2019
Bond -@5% $ 1000
Converted Shares - $1/ share * 1000 shares
Issue of Convertable Bond
US GAAP	Debit ($)	Credit ($)
Cash	1,000
Convertible Bonds		1,000
IFRS Basis
Bond Value ($)(a)	1,000
Interest Rate (b)	5%
Interest Amount (a*b)	50
Period to cover ( 1st Jan 2015 to 31st Dec 2019) -5 year	5
Interest Rate ( as per Question)	7%	0.07

Calculation of Discount Factor
Year 1(C)	0.935	1/(1+r)==r is 7%	1/(1+0.07)
Year 2 (d)	0.87	c/(1.07)
Year 3(e)	0.82	d/(1.07)
Year 4 (f)	0.76	e/(1.07)
Year 5	0.7130	f/(1.07)
Total Discount Factor	4.1002

Present Value of Bond $
Coupon amount ( $ 50 ) * sum of Discount factor ( 4.1002) + Principal Value ( $1000) * Discount factor ( at 5th Year) ( 0.7130)
50 *4.1002+ 1000*0.7130	918.01
IFRS Basis	Debit ($)	Credit ($)
Cash	1,000
Convertible Bonds		918
Premium of Securities conversion Amount )		82