A company issues 100,000 5% convertible bonds with a nominal value of R100 each on 1...

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A company issues 100,000 5% convertible bonds with a nominal value of R100 each on 1 January 20X0. Each bond is convertible at any time up to maturity into 120 ordinary shares for every R100 bond. Alternatively the bonds will be redeemed at par after five years. The market rate of interest for a similar five year term bond with no conversion option is 7%. Upon initial recognition, the liability component of the bond was correctly calculated and recognised as R9,180,000 and the equity component was R820,000. Required: Calculate the carrying value of the liability component that would be shown in the statement of financial position at 31 December 20X0. Give your answer to the nearest R. (10 marks) A company issues 100,000 5% convertible bonds with a nominal value of R100 each on 1 January 20X0. Each bond is convertible at any time up to maturity into 120 ordinary shares for every R100 bond. Alternatively the bonds will be redeemed at par after five years. The market rate of interest for a similar five year term bond with no conversion option is 7%. Upon initial recognition, the liability component of the bond was correctly calculated and recognised as R9,180,000 and the equity component was R820,000. Required: Calculate the carrying value of the liability component that would be shown in the statement of financial position at 31 December 20X0. Give your answer to the nearest R. (10 marks) A company issues 100,000 5% convertible bonds with a nominal value of R100 each on 1 January 20X0. Each bond is convertible at any time up to maturity into 120 ordinary shares for every R100 bond. Alternatively the bonds will be redeemed at par after five years. The market rate of interest for a similar five year term bond with no conversion option is 7%. Upon initial recognition, the liability component of the bond was correctly calculated and recognised as R9,180,000 and the equity component was R820,000. Required: Calculate the carrying value of the liability component that would be shown in the statement of financial position at 31 December 20X0. Give your answer to the nearest R. (10 marks) A company issues 100,000 5% convertible bonds with a nominal value of R100 each on 1 January 20X0. Each bond is convertible at any time up to maturity into 120 ordinary shares for every R100 bond. Alternatively the bonds will be redeemed at par after five years. The market rate of interest for a similar five year term bond with no conversion option is 7%. Upon initial recognition, the liability component of the bond was correctly calculated and recognised as R9,180,000 and the equity component was R820,000. Required: Calculate the carrying value of the liability component that would be shown in the statement of financial position at 31 December 20X0. Give your answer to the nearest R. (10 marks)

Answer rating: 100% (QA)

SOLUTION To calculate the carrying value of the liability component of the bond we need to calculate the present value of the future cash flows using the market interest rate of 7 The cash flows of th... View the full answer