Determine the amounts of the financial liability

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On 1 July 2020, Resolute Ltd issued 2500 convertible notes. The notes have a three-year term and are issued at par with a face value of $1000 per note, giving total proceeds at the date of issue of $2.5 million.

The notes pay interest at 4% p.a. annually in arrears. The holder of each note is entitled to convert the note into 250 ordinary shares of Resolute Ltd at contract maturity.

When the notes are issued, the prevailing market interest rate for similar debt (similar term, similar credit status of issuer and similar cash flows) without conversion options is 6% p.a. Hence at the date of issue:

Present Value of the principal:         $2,099,048
Present Value of the interest:               $267,301
Total contractual Cash Flows            $2,366,349

REQUIRED

Problem 1. Use the residual valuation method to determine the amounts of the financial liability and equity components attributable to the issue of convertible notes.

Problem 2. make schedule to determine the amortised cost of the financial liability up until their repurchase.

Reference no: EM132806444

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