A compound instrument,such as a convertible note,comprises two components.They are:
A) A financial liability (contractual arrangement to deliver cash or another financial liability) and an equity instrument (a call option granting the holder the right, for a specified period of time, to convert it into a fixed number of ordinary shares of the entity).
B) A financial liability (contractual arrangement to deliver cash or another financial asset) and an equity instrument (a call option granting the holder the right, for a specified period of time, to convert it into a fixed number of ordinary shares of the entity).
C) A financial liability (contractual arrangement to deliver cash or another financial asset) and an equity instrument (a call option granting the holder the right, for a specified period of time, to convert it into a variable number of ordinary shares of the entity).
D) A financial liability (contractual arrangement to deliver cash or another financial asset) and an equity instrument (a put option granting the holder the right, for a specified period of time, to convert it into a fixed number of ordinary shares of the entity).
E) A financial liability (contractual arrangement to deliver cash or another financial asset) and an equity instrument (a put option granting the holder the right, for a specified period of time, to sell a fixed number of ordinary shares of the entity).

Question

Quizplus · Accepted Answer

A convertible note is a type of debt financing that can be converted into equity, typically common shares of the issuing company. As per IFRS 9, a convertible note is considered a compound instrument as it comprises two components: a liability component and an equity component. The liability component represents the contractual obligation of the issuer to pay cash or another financial asset, and the equity component represents the option holder's right to convert the instrument into a fixed number of ordinary shares of the entity. Therefore, the correct choice is B.

A Compound Instrument,such as a Convertible Note,comprises Two Components