Question: (3a) When an entity issues a financial instrument, it has to determine its classification either as debt or as equity. The result of the

(3a) When an entity issues a financial instrument, it has to determine its classification either as debt or as equity. The result of the classification can have a significant effect on the entity's reported results and financial position. Grea Berhad issued a $250 million convertible bond that attracts interest of 5%. The market rate for an equivalent debt without the convertible option is 7%. The bond of $250 million is repayable in full after five years or convertible to equity. Required: Explain what is meant by the term split accounting when applied to convertible bonds. Illustrate on how to split the $250 million convertible loan above between debt and equity at inception (Show all workings). (13 marks)

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