b. Sammy issues a 3% GH¢ 200,000 two-year convertible bond at par. The effective rate of interest of the instrument is 8%. The terms of the convertible bond is that the holder of the bond, on the redemption date, has the option to convert the bond to equity shares at the rate of 10 shares with a nominal value of GH¢ I per GH¢ 100 debt rather than being repaid in cash. Transaction costs can be ignored. Sammy will account for the financial liability arising using amortised cost. Required Explain the accounting for the issue of the convertible bond.
b. Sammy issues a 3% GH¢ 200,000 two-year convertible bond at par. The effective rate of interest of the instrument is 8%. The terms of the convertible bond is that the holder of the bond, on the redemption date, has the option to convert the bond to equity shares at the rate of 10 shares with a nominal value of GH¢ I per GH¢ 100 debt rather than being repaid in cash. Transaction costs can be ignored. Sammy will account for the financial liability arising using amortised cost. Required Explain the accounting for the issue of the convertible bond.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:b. Sammy issues a 3% GH¢ 200,000 two-year convertible bond at par. The effective rate of interest of the
instrument is 8%. The terms of the convertible bond is that the holder of the bond, on the redemption date,
has the option to convert the bond to equity shares at the rate of 10 shares with a nominal value of GH¢ I
per GH¢ 100 debt rather than being repaid in cash. Transaction costs can be ignored. Sammy will account
for the financial liability arising using amortised cost.
Required
Explain the accounting for the issue of the convertible bond.
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