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What is meant by a compound financial instrument

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Reference no: EM132495261

Mega Bhd has 8% convertible loan stocks that have a par value of RM 2,500 per unit. 10,000 units were issued at par on 1 July 2016. The loan stocks are convertible to ordinary shares or redeemable in cash at par in three years from the date of issue. The directors had decided to issue the convertible loan stocks because non-convertible loan stocks would have required an interest rate of 10%. The directors intend to show the loan at RM25 million under non-current liabilities. The following discount factors are available:

Year 8% 10%

1 0·93 0.91

2 0·86 0.83

3 0·79 0.75

Question (a) Explain what is meant by a compound financial instrument and explain whether or not the convertible loan stocks of Mega Bhd can be classified as non-current liability.

Question (b) Analyse the convertible loan stocks into their relevant components for initial recognition. (10 marks)

Question (c) schedule of amortisation using the effective interest rate and determine the values of the convertible loan stocks to be disclosed under noncurrent liability as at 30 June 2017 and 30 June 2018.

Reference no: EM132495261

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