Sampras Ltd issued $20 million of convertible notes on 1 July 2003.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 Sampras 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 guidance provided in AASB 132?
A.

B.

C.

D.

E. None of the given answers.

Question

Sampras Ltd issued $20 million of convertible notes on 1 July 2003.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 Sampras 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 guidance provided in AASB 132?
A.
  
B.
  
C.
  
D.
  
E. None of the given answers.

Quizplus · Accepted Answer

The appropriate accounting entries to record the issue of the convertible notes and the first payment of interest in accordance with guidance provided in AASB 132 are shown in option B. The notes are recorded as a liability at their face value of $20 million, and the corresponding amount of cash received is also recorded. The annual interest of 5% is accrued and recorded as an expense, and the corresponding interest payable is also recorded as a liability. The conversion option is recognized as a separate equity component and recorded at its fair value at the date of issue.

Sampras Ltd Issued $20 Million of Convertible Notes on 1