Calculate the amount of financial liability

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Question - Smith Ltd issues 100,000 $1 redeemable convertible notes. The notes pay interest at 5% per annum. Each note converts at any time at the option of the holder into one ordinary share. The notes are redeemable at the option of the issuer for cash after 5 years. If after 5 years the notes have not been redeemed or converted, they cease to carry interest. Market rates for similar notes without the conversion option are 7% per annum.

Required - In accordance with AASB 132 Financial Instruments: Presentation:

(a) Calculate the amount of financial liability if Smith Ltd needs to record any financial liability. Give reasons to support your answer.

(b) Calculate the amount of equity instrument if Smith Ltd needs to record any equity instrument. Give reasons to support your answer.

Reference no: EM133111503

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