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(Changes in fair value RM14,000,000 –

RM13,500,000)

31 December 2020

Interest expenses (RM15,000,000 x 5%) 750,000
Bank 750,000

(Interest paid for second year)

Profit or Loss (SOCI) 200,000

5% debentures 200,000

(Changes in fair value RM14,200,000 –
RM14,000,000)

c) Issuance of convertible loan stock

➢ Has features of both liability and equity.
➢ It is a compound or hybrid instrument.

➢ Give the holder or issuer the option to convert the debentures into shares.

Accounting standards on financial instruments required this instruments to be split to

liability and equity components and will disclosed separately. The transaction costs that relate

to the equity component are shown as a deduction from equity and the portion that relates to
the liability component can be charge as an expenses in profit and loss.

Example 3.3

Maze Bhd issued 4,000 6 percent convertible loan stocks on 1 January 2018 with a face
value of RM1,000 per loan stock. The long period is three years. The total proceeds from the

issue amounted to RM4,000,000. Interest is payable at the end of each financial year (31

December). Each loan stock is convertible at any time up to maturity into RM500 ordinary
shares. When the loan stock were issued, the prevailing market interest rate for similar debt

without the conversion option was 9 percent.

Required:
Discuss the accounting treatment.

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