CA Final
Financial Reporting
Accounting For Financial Instruments
- Hena Limited issued 1 million 10.5% 10 year callable convertible bond at RS 1000. Straight bonds (NCD) of similar maturity would carry 12% coupon. Each bond may be converted any time into 40 equity shares of Hena Limited. How will Hena Ltd present the bond issue in Balance Sheet?Answer
- At the beginning of year 1, an enterprise issued 20,000 convertible debentures with face value Rs. 100 per debenture, at par. The debentures have six-year term. The interest at annual rate of 9% is paid half-yearly. The bondholders have an option to convert half of the face value of debentures into 2 ordinary shares at the end of year 3. The bondholders not exercising the conversion option will be repaid at par to the extent of Rs. 50 per debenture at the end of year 3. The non-convertible portion will be repaid at 10% premium at the end of year 6. At the time of issue, the prevailing market interest rate for similar debt without conversion option was 10%. Compute value of embedded derivative.(Answered)
- An entity has a portfolio of prepayable loans whose coupon and effective interest rate is 10 percent and whose principal amount and amortised cost is Rs. 10,000. It enters into a transaction in which, in return for a payment of Rs. 9,115, the transferee obtains the right to Rs. 9,000 of any collections of principal plus interest thereon at 9.5 per cent. The entity retains rights to Rs. 1,000 of any collections of principal plus interest thereon at 10 per cent, plus the excess spread of 0.5 per cent on the remaining Rs. 9,000 of principal. Collections from prepayments are allocated between the entity and the transferee proportionately in the ratio of 1:9, but any defaults are deducted from the entity’s interest of Rs. 1,000 until that interest is exhausted. The fair value of the loans at the date of the transaction is Rs. 10,100 and the estimated fair value of the excess spread of 0.5 per cent is Rs. 40.(Answered)
By- Tharendra Lunia
