Gerald issued 9% K35 million convertible loan note on 1 April 2015 at par. Interest is payable in arrears on 31 March each year. The loan note is redeemable at par on 31 March 2018 or convertible into equity shares at the option of the loan note holders on the basis of 30 shares for each K100 of loan. A similar instrument without the conversion option would have interest rate of 10% per annum. The present value of K1 receivable at the end of each year based on discount rates of 10% are; end of year 10% 1 0.91 2 0.83 3 0.75 cumulative 2.49 Explain the accounting treatment of the above instrument
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Gerald issued 9% K35 million convertible loan note on 1 April 2015 at par. Interest is payable in arrears on 31 March each year. The loan note is redeemable at par on 31 March 2018 or convertible into equity shares at the option of the loan note holders on the basis of 30 shares for each K100 of loan. A similar instrument without the conversion option would have interest rate of 10% per annum. The present value of K1 receivable at the end of each year based on discount rates of 10% are;
end of year 10%
1 0.91
2 0.83
3 0.75
cumulative 2.49
Explain the accounting treatment of the above instrument
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