Under IFRS the proceeds from the issuance of convertible debt are reported as
A) debt only.
B) equity only.
C) debt or equity depending on the circumstances.
D) both debt and equity.

Question

Quizplus · Accepted Answer

Under IFRS, the proceeds from the issuance of convertible debt are reported as both debt and equity, as the instrument contains features of both debt and equity. The debt component represents the liability of the issuer to repay the principal amount with interest, while the equity component represents the value of the conversion option granted to the holder. This bifurcation of the convertible debt into its debt and equity components is done using a process known as "debt-equity classification". Under IFRS, the proceeds from the issuance of convertible debt are reported as both debt and equity. This is because convertible debt has both debt and equity features. Initially, the convertible debt is classified as debt and the proceeds are recorded as a liability. However, when the debt is converted into equity, the proceeds are reclassified from liability to equity. Therefore, both the debt and equity components of the convertible debt need to be recognized separately in the financial statements.

Under IFRS the Proceeds from the Issuance of Convertible Debt