ZuoTi.Pro
Question

financial reporting ( need help urgently)

Maju Berhad issues the following debt instruments, all with a nominal value of RM15million, redeemable in three years. The effective interest rate is 12%. Maju Berhad does not account for the instruments at Fair Value to Profit or Loss (FVTPL). 

Required: Assess supported by calculations, how the following financial instruments should be dealt with in the financial statements. 

- Instrument AA has a coupon interest rate of 0% and is redeemable at a premium of RM7 million.

 - Instrument BB has a coupon interest rate of 0% and is issued at a discount of RM3.2million. 

- Instrument CC has a coupon interest rate of 3%, is issued at a discount of `RM2million and redeemable at a premium of RM2.3million.

accounting   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Answer-a:

Convertible bonds are basically debt instruments but they also contain an option to convert into equity shares and this means that a convertible bond contains both debt and equity elements.

For accounting purposes it will be necessary on initial recognition to split out the debt and equity elements so that they can be separately accounted for. The fair value of the option is highly subjective, but the fair value of the debt element is more easily measured by discounting the future cash flows. The assumption is then made that the fair value of the option is the balancing figure.

PV of the Cash flow Discount Year future (60,00,000*6%) factor cash flow 360000 0.926 £ 3,33,360 2 360000 0.857 £ 3,08,520 3

Credit Debit £ 60,00,000 Account Cash Financial liability Equity |(to record initial recognistion of issue of bond) £ 56,02,3

Rest part to be answered shortly.


answered by: ANURANJAN SARSAM
0 0
Add a comment
Know the answer?
Add Answer to:
financial reporting ( need help urgently)
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Vivek plc issues three debt instruments, all with a nominal value of £100,000 redeemable in TWO...

    Vivek plc issues three debt instruments, all with a nominal value of £100,000 redeemable in TWO years. The implicit rate of interest for all the financial instruments is 10%. Required: Explain (using calculations as appropriate), how EACH of the following financial instruments should be dealt with in the financial statements, for the two years (the coupon rate refers to the rate of interest): 1. The first has a coupon rate of 0%, and the debenture is redeemed at a premium...

  • Vivek plc issues three debt instruments, all with a nominal value of £100,000 redeemable in TWO years. The implicit rate of interest for all the financial instruments is 10%.

    Required: Explain (using calculations as appropriate), how EACH of the following financial instruments should be dealt with in the financial statements, for the two years (the coupon rate refers to the rate of interest): The first has a coupon rate of 0%, and the debenture is redeemed at a premium of £21,000.The second has a coupon rate of 0% and the debenture is issued at a discount of £17,355. The third has a coupon rate of 2%, and the debenture is issued...

  • financial reporting ( need help urgently)

    The following extracts from the trial balance have been taken from the accounting records of Dagang Berhad as at 30 June 2020:The following notes are relevant:(i) Dagang Berhad entered into a contract where the performance obligation is satisfied over time. The total price on the contract is RM12 million, with total expected costs of RM7 million. Progress towards completion was measured at 60% at 30 June 2019 and 70% on 30 June 2020.The correct entries were made in the year...

  • a) Kunal plc issued £6 million 6% convertible bonds on 1 January 2017 at par. The...

    a) Kunal plc issued £6 million 6% convertible bonds on 1 January 2017 at par. The bonds are redeemable at par on 31 December 2020 or convertible at that date on the basis of 120 £1 ordinary shares for every nominal £100 of bonds. At the date of issue the prevailing market rate for similar debt without conversion rights was 8%. The interest due was paid on 31 December 2017 and recorded within finance costs during the year. Required: Explain...

  • Milk Ltd has the following financial instrument issued: 1) On 1 April 2018 an 8% £30...

    Milk Ltd has the following financial instrument issued: 1) On 1 April 2018 an 8% £30 million convertible loan note was issued at par. Interest is payable in arrears on 31 March each year. The loan note is redeemable at par on 31 March 2021 or convertible into equity shares at the option of the loan note holders on the basis of 30 shares for each £100 of loan. A similar instrument without the conversion option would have an interest...

  • Milk Ltd has the following financial instrument issued: 1) On 1 April 2018 an 8% £30...

    Milk Ltd has the following financial instrument issued: 1) On 1 April 2018 an 8% £30 million convertible loan note was issued at par. Interest is payable in arrears on 31 March each year. The loan note is redeemable at par on 31 March 2021 or convertible into equity shares at the option of the loan note holders on the basis of 30 shares for each £100 of loan. A similar instrument without the conversion option would have an interest...

  • Milk Ltd has the following financial instrument issued: 1) On 1 April 2018 an 8% £30...

    Milk Ltd has the following financial instrument issued: 1) On 1 April 2018 an 8% £30 million convertible loan note was issued at par. Interest is payable in arrears on 31 March each year. The loan note is redeemable at par on 31 March 2021 or convertible into equity shares at the option of the loan note holders on the basis of 30 shares for each £100 of loan. A similar instrument without the conversion option would have an interest...

  • Bonds issued by BB&C communications that have a coupon rate of interest equal to 10.65 percent...

    Bonds issued by BB&C communications that have a coupon rate of interest equal to 10.65 percent currently have a yield to maturity (YTM) equal to 10.75 percent. Based on this information, what if anything, can be said about the price of these bonds in the financial markets? a- They are selling at a premium b- They re selling at par value c- They are selling at a discount d- Not enough information is given to answer this question

  • ACC206: Financial Reporting 3.0 1. When bonds are sold at a discount and the effective interest...

    ACC206: Financial Reporting 3.0 1. When bonds are sold at a discount and the effective interest method is used, at each subsequent interest payment date, which of the following is true? a. The cash paid for interest is less than the effective interest expense. b. The cash paid for interest is equal to the effective interest expense. c. The cash paid for interest is more than if the bonds had been sold at a premium. d. The cash paid for...

  • P14-34A (book/static) Question Help On January 1, 2018, Nurses Credit Union (NCU) issued 8%, 20-year bonds...

    P14-34A (book/static) Question Help On January 1, 2018, Nurses Credit Union (NCU) issued 8%, 20-year bonds payable with face value of $600,000. The bonds pay interest on June 30 and December 31. Read the requirements Requirement 1. If the market interest rate is 7% when NCU issues its bonds, will the bonds be prioed at face value, at a premium, or at a discount? Explain. The 8% bonds issued when the market interest rate is 7% will be priced at...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT