Sampras Plc issued £20 million of convertible notes on 1 July 2013.The notes have a life of 6 years and a face value of £20 each.Annual interest of 5% 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 Sampras Plc have issued debt with similar terms but without the option to convert at the rate of 7%.What are the appropriate accounting entries to record the issue of the convertible notes and the first payment of interest in accordance with guidance provided in IAS 32?

Question

Quizplus · Accepted Answer

B is the correct answer because it correctly records the issuance of the convertible notes and the first interest payment in accordance with IAS 32. In option B, the company records the issuance of £20 million in convertible notes at their face value, with a corresponding credit to the convertible notes account. It also records the first year's interest expense of £1 million by debiting the interest expense account and crediting the interest payable account. Option A records the issuance of the convertible notes correctly but records the first year's interest as an accounting error. Option C records the issuance of the convertible notes correctly but wrongly records the first year's interest expense as a debit to the interest payable account. Option D records the issuance of the convertible notes correctly but records the first year's interest incorrectly as a debit to the interest expense account.

Sampras Plc Issued £20 Million of Convertible Notes on 1