SAYID Ltd issues 4,000 convertible bonds with 5% coupon rate on 1 January 2015 at par. The bonds are redeemable three years later at a par value of GH¢500 per bond, pays interest annually in arrears and each bond can be converted into 30 GH¢1 equity share at the date of maturity. The prevailing market interest rate for three-year bonds without conversion right is 9%.

Required

1. Explain, with reference to relevant standards, how the bond should be accounted for.
2. 
   
3. Show how the convertible bond would be presented in the financial statements for the three years.
4. 
   
5. Pass a journal to record the transaction at the date of maturity assuming:

1. the bonds were converted to equity shares
2. the bonds were redeemed for cash.                                                        

4. SAYID also purchased a bond for GH¢882,028 on 1 January 2018 to be redeemed on 31 December, 2021 for GH¢1,200,000. The bond is held at amortised cost and carries no coupon. The effective interest rate is 8%.

Required: 

Show how the bond will be accounted for in the financial statement on 31 December 2018 and 2019.

Answer rating: 100% (QA)

Answer 1 The bonds should be accounted for using the effective interest rate method The effective in... View the full answer