Page 358 - FR Integrated Workbook 2018-19
P. 358
Chapter 24
Example 3
Compound instrument
On 1 January 20X5 a 5% convertible loan note is issued for $5,000. The loan
is repayable after three years for cash of $5,000 or may be converted to
equity. The market rate for loans with no conversion option is 8%.
Discount factors are as follows:
Year Discount Discount
factor at factor at
5% 8%
1 0.95 0.93
2 0.91 0.86
3 0.86 0.79
Required:
(i) Split the loan at inception between equity and liability
(ii) Show extracts from the financial statements for the year ended
31 December 20X5.
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