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Chapter 20

CHAPTER 3 – FINANCIAL INSTRUMENTS

Example 3.1

Journal entry to record initial recognition of convertible bonds:

$000

Dr Bank 4,000
Cr Financial Liability 3,895

Cr Equity (bal fig) 105 β

Year Cash flow ($) Discount factor Present value
6% ($000)

1–3 200,000 (W) 2.673 535
3 4,000,000 0.840 3,360
––––––––––-

3,895
––––––––––

(W) Coupon rate interest cash flow = 5% × 4,000,000 = $200,000

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