Seminar Question $9\mathrm{.}3$

$($a$)$ On $1$ January $20$X$6,$ a company issues a $200,0007\%$ convertible loan note at par. Interest on this convertible loan note is payable on $31$ December each year. The convertible loan note is due for redemption at par on $31$ December $20$X$9$ but may be converted into ordinary shares on that date instead. A similar non$-$convertible loan note would have an interest rate of $9\%.$

Required:

Calculate the fair value of the liability component and the equity component of this convertible loan note at $1$ January $20$X$6.$

Write out the journal required to record the relevant entries into the financial statements on issue of the convertible loan note at $1$ January $20$X$6.$

Discount table as follows:

Year $7\%9\%$

$10\mathrm{.}930\mathrm{.}92$

$20\mathrm{.}870\mathrm{.}84$

$30\mathrm{.}810\mathrm{.}77$

$40\mathrm{.}760\mathrm{.}71$

$($b$)$ On $1$ January $20$X$7$ a company buys a $100,0006\%$ loan note for $93,930.$ Interest will be received on $31$ December each year and the note will be redeemed at par on $31$ December $20$Y$1.$ The effective interest rate is $7\mathrm{.}5\%$ per annum. Financial statements are prepared to $31$ December each year. You can assume that the $$Business model$$ test and $$Cashflow$$ test outlined under IFRS$9$ have been satisfactorily passed.

Required:

State the amount at which the loan note asset should be measured on $1$ January $20$X$7$ in the Statement of Financial Position.

Calculate the amount at which the loan note should be measured on $31$ December $20$X$7,20$X$8,20$X$9,20$Y$0$ and $20$Y$1$ in the Statement of Financial Position.