Reference no: EM133074424

Question - In this question, you are required to apply the requirements of AASB 132 Financial Instruments: Presentation. 

Required - Determine whether the business has a financial liability or equity instrument resulting from the issue of securities in each situation below. Give reasons for your answer.

a. Leaps and Bounds Ltd issues 100,000 $1 convertible notes. The notes pay interest at 6% p.a. The market rate for similar debt without the conversion option is 8%. Each note is not redeemable, but it converts at the option of the holder into however many shares that will have a value of exactly $1.

b. Leaps and Bounds Ltd issues 100 000 $1 redeemable convertible notes. The notes pay interest at 5% p.a. The notes are redeemable after 5 years at the option of the issuer for cash or for a variable number of shares (calculated according to a formula). If after 5 years the notes have not been redeemed or converted, they continue to carry interest at a new market rate to be determined at the expiration of the 5 years.

c. Leaps and Bounds Ltd issues redeemable preference shares. The shares are redeemable at the expiration of five years at the option of the holder. The shares carry a cumulative 6% dividend.