Bonds with Detachable Warrants Flashcards
What are the characteristics of Bonds with Detachable Warrants?
They may pay somewhat lower interest or their price may be increased somewhat relative to bonds without warrants.
When bonds are sold with detachable warrants how is it accounted for?
As two separate transactions. The portion of the bond price allocated to the warrants is recorded in owner’s equity.
How is the purchase price allocated to bonds with detachable warrants?
If FMV of both is known, the proceeds are allocated based on respective FMVs
If FMV of one is known, allocate the FMV to one and the remainder of the proceeds to the other.
How should bonds with detachable warrants be accounted for after issuance?
Unaffected by warrants; amortize premium or discount.
How should the exercise of detachable warrants be accounted for?
Debit cash for exercise price, debit detachable warrants, credit common stock and additional paid in capital (APIC).
How does IFRS treat compound securities (bonds, etc.)?
Requires that they be separated into their debt and equity components, similar to bonds with warrants for U.S. GAAP.
-The total price of the compound security must be allocated first to debt, with the remainder going to the equity component
How are convertible bonds accounted for under IFRS when they are converted?
The equity component that was recognized at issuance is closed on conversion, along with the bonds payable account and any remaining discount or premium. The final capital accounts are credited.
If bonds with detachable stock warrants are issued and immediately after issue, the aggregate market value of the bonds and warrants exceeds proceeds, is the amount of proceeds allocated to the warrants less than their market value?
Yes and the amount is recorded as contributed capital
