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MC Question 11
On 1 October 2013, Bertrand issued $10 million convertible loan notes which carry a nominal interest (coupon) rate
of 5% per annum.
The loan notes are redeemable on 30 September 2016 at par for cash or can be exchanged for equity shares.
A similar loan note, without the conversion option, would have required Bertrand to pay an interest rate of 8%.
The present value of $1 receivable at the end of each year, based on discount rates of 5% and 8%, can be taken as:
| 5% | 8% | |
|---|---|---|
| End of year 1 | 0·95 | 0·93 |
| 2 | 0·91 | 0·86 |
| 3 | 0·86 | 0·79 |
How would the convertible loan appear in Bertrand’s statement of financial position on initial recognition (1 October 2013)?
| Equity | Non-current liability | |
|---|---|---|
| $’000 | $’000 | |
| A | 810 | 9,190 |
| B | nil | 10,000 |
| C | 10,000 | nil |
| D | 40 | 9,960 |