SECTION B

Answer all questions in the answer booklet provided.

QUESTION $1$

Negril Company is construction company located in western Jamaica, issued $4,000$ convertible bonds at the start of $2012.$ The bonds have a four$-$year term, and are issued at par with a face value of $$1,000$ per bond, giving total proceeds of $$4,000,000.$ Interest is payable annually in arrears at a nominal interest rate of $9\%.$ Each bond is convertible at any time up to maturity into $250$ ordinary shares.

The prevailing market interest rate for similar debt without conversion options was $12\%$ when the bonds were issued

Required:

a$)$ Calculate value of the equity and debt component of the What is the value of the equity component in the bond?

$(8$ marks$)$

b$)$ Define a compound financial Instrument and explain how it is recognized in the financial statements as per IAS$32.$

$(6$ marks$)$