This is the question and solution however i do not know how to calculate it, please provide step by step on how the numbers are calculated

Balatbat Ltd issued $20 million of convertible notes on 1 July 2006. The notes have a life of 6 years and a face value of $20 each. Annual interest of 5 per cent is payable at the end of each year. The notes were issued at their face value and can be converted at any time over their lives. Organisations with a similar risk profile to Balatbat Ltd have issued debt with similar terms but without the option to convert at the rate of 7 per cent.

What are the appropriate accounting entries to record the issue of the convertible notes and the first payment of interest in accordance with relevant accounting standards?

solution

1 July 2006

Dr Cash at bank 20 000 000

Cr Convertible notes liability 18 092 500

Cr Equity (Option to convert notes) 1907 500

30 June 2007

Dr Interest expense 1 266 475

Cr Cash at bank 1 000 000

Cr Convertible notes liability266 475

From the previous question, what are the appropriate accounting entries to record the conversion of the notes to equity on 1 July 2007 (after interest has been paid and recorded)?

Solution

Dr Convertible notes liability 18 358 975

Dr Equity (Option to convert notes)1 907 500

CrShare capital20 266 475

Roddick Ltd holds a well-diversified portfolio of shares with a current market value on 1 May 2007 of $750,000. On this date Roddick Ltd decides to hedge the portfolio by taking a sell position in ten SPI futures units. The ASX 200 SPI is 2730 on 1 May 2007. The price of one contract in SPI futures equals the ASX200 SPI multiplied by $25. The futures broker requires a deposit of $1,500. On 30 June the ASX 200 SPI has fallen to 2570 and the value of the company's share portfolio has fallen to $690,000. What is the gain or loss on the futures contract and the net gain or loss after hedging?

Solution

Gain on futures contract: $40,000;

Net loss after hedging: $20,000

Alpha Lessee Ltd leases equipment from Beta Lessor Ltd on 1 July 2003, on the following conditions.

Term of the lease

10 years

Life of leased asset (zero scrap value)

12 years

Fair value of asset at start of lease

$65,000

Interest rate implicit in lease

10% per annum

Annual lease rental (paid in arrears)

$10,000

Present value of minimum lease payments

$61,446

The lease is a finance lease and both companies comply with AASB 1008. Alpha Lessee will retain the equipment when the lease expires. Straight line depreciation is used for assets. The balance sheet of Alpha Lessee Ltd at 30 June 2004 will show (in whole dollars):

Solution

Lease asset $56,325