What is the role of Corporation Valuation with the supporting document of the new IFRS 9...
What is the role of Corporation Valuation with the supporting document of the new IFRS 9 Financial Instrument? Some classification would be nice (eg Fixed to fixed valuation or derivatives that require subsequent re-evaluation.
Homework Answers
IFRS 9 is financial instrument and financial instrument gives rise to a financial asset of one entity and a financial liability or equity instrument to another.
for gaining a more insight of IFRS 9 I will include a question with answer so that you can understand how IFRS 9 affects the corporation valuation.
R co issues 2000 convertible bonds at the start of 2002. The bonds have a three year term and are issued at par with face value of $1000 per bond, giving a total proceeds of $2000000. Interest is payable in arrears at a nominal annual interest rate of 6%. Each bond is convertible at anu time up to maturity into 250 ordinary shares. When the bonds are issued , the prevailing market interest rate for similar debt without conversion option is 9%,
What is the value of the equity component in the bond?
in this question we need to find out equity.
Equity= cash proceeds- liability
we need to find liability (w1)
| year | future cash flows | discount factor(9%) | present value |
| 1 | 120000 (2000000*.06) | 0.917 (1/1.09) | 110040 (120000*0.917) |
| 2 | 120000 | 0.842 (0.917/1.09) | 101040 |
| 3 | 120000 | 0.772 (0.842/1/1.09) | 92640 |
present value of repayment is 2000000*.772= 1544000
total sum is 1847720
equity = 2000000-1847720 = 1847720.
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What is the role of Corporation Valuation with the supporting
document of the new IFRS 9...
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