Convertible Debentures

Question 1

If convertible debenture issued?

Answer 1

It is a combination of equity and liability and is accounted for using split equity accounting

Question 2

How is liability element calculated?

Answer 2

Discounting back maximum possible amount of cash that is repaid assuming conversion doesn’t take place

Question 3

Which discount rate is used?

Answer 3

Interest rate on similar debt without an conversion option

Question 4

What is the equity element?

Answer 4

Difference between the proceeds on issue and initial liability element

Question 5

What is the liability element?

Answer 5

Subsequently measured at amortised cost, using interest rate on similar debt without coversion option as the effective rate

Question 6

Convertible debentures for investors?

Answer 6

Investors receive shares instead of cash

Question 7

Proceeds calculation?

Answer 7

Convertible debentures * par value

Question 8

Cash calculation?

Answer 8

(Convertible debentures * par value) * %

Question 9

Where is the redemption added onto?

Answer 9

The final year of cash flow

Question 10

Equity calculated?

Answer 10

Bank - financial liability

Question 11

When working with cash flows?

Answer 11

Always work to the nearest million