The CFO of GOLD Limited, a manufacturing company, provided you the following information for your valuable opinion. The Company had issued 8%…

This instrument has two components – (1) Mandatory annual interest to be paid by the issuer on convertible debentures of 3,20,00,000 @ 8% till 4 years, and (2) Payment of the principal amount at the end of 4th year. However, since the holder has the option to convert the debentures into shares on maturity, as per Ind AS 32, the instrument is a compound financial instrument which carries elements of both liability and equity. Statement showing computation of liability and equity component in the compound financial instrument. Particulars ₹ Present value of interest payable during 4 years discounted at 10% (i.e.3,20,00,000 × 8% x 3.169) 81,12,640 Present value of principal payable at the end of 4thyear discounted at 10% (3,20,00,000 x 0.683) 2,18,56,000 Liability component of the compound financial instrument 2,99,68,640 Equity component of the financial instrument (Balancing Figure) 20,31,360 Total proceed 3,20,00,000 Computation of finance cost to be charged to the financial instrument Date Opening balance a ₹ Finance cost b = a x 10% ₹ Interest outflow 3,20,00,000 x 8% c ₹ Outstanding balance at the end of the year d = (a+b-c) ₹ 31.3.2023 2,99,68,640 29,96,864 25,60,000 3,04,05,504 31.3.2024 3,04,05,504 30,40,550 25,60,000 3,08,86,054 31.3.2025 3,08,86,054 30,88,605 25,60,000 3,14,14,654 31.3.2026 3,14,14,654 31,45,346 25,60,000 3,20,00,000 31,45,346 -31,41,466 = 3,880 is due to approximation and rounding off. According to the above table, finance cost to be charged in the Statement of Profit and Loss = 30,40,550. The closing balance of liability component of convertible debentures to be presented in the balance sheet would be - 3,08,86,054 and equity component would be 20,31,360.