Page 57 - Ebook Financial Accounting 3

Answer:

Table of calculation
Years 6% 9% Discounted Amount

Interest

RM RM
1 Interest 240,000 0.91 218,400

2 Interest 240,000 0.84 201,600

3 Interest 240,000 0.77 184,800
3 Loan 4,000,000 0.77 3,080,000

Total liability component 3,684,800
Proceeds 4,000,000

Equity component 315,200

This instrument is partially into liability and equity.

Liability: amount is calculated which is the interest payable over the three years and the
principal discounted using the market interest rate of 9 percent for similar debt with no

conversion rights. The balance will be recorded as equity.

6 percent interest rate will be paid on the RM4,000,000 proceeds.

The annual interest payable on the borrowing: RM4,000,000 x 6% = RM240,000.

Years Borrowing 9% Interest Paid on 6% Interest Paid on Liability at
Carrying Amount Nominal Amount Year-end

RM RM RM RM
1 3,684,800 331,632 (240,000) 3,776,432

2 3,776,432 339,879* (240,000) 3,876,311

3 3,876,311 348,868* (240,000) 4,000,000
* Figures rounded off

Journal entries

Debit Credit
RM RM

6% convertible loan stocks 4,000,000
Equity component 315,200

Ordinary shares 4,315,200

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