Company A has convertible notes on issue. These notes are convertible to ordinary shares of the Company after 3 years. The distributions made to the note holders by Company A are classified by Company A as follows:
A) interest expense.
B) dividends distributed.
C) a portion representing interest expense and a portion representing dividends distributed
D) indeterminable based on the information provided.

Question

Quizplus · Accepted Answer

Since the convertible notes are considered debt, the distributions made to the note holders should be classified as interest expense. However, since the notes are convertible to ordinary shares, a portion of the distributions may also be considered dividends. Therefore, the correct answer is C, a portion representing interest expense and a portion representing dividends distributed.

Company a Has Convertible Notes on Issue