Ind AS 32 "Financial Instruments: Presentation" On 1st April, 2X01, A Ltd. issued a 10% convertible debenture with a face value of 1,000 maturing on…
CA Final · Financial Reporting · RTP · May 2025
Ind AS 32 "Financial Instruments: Presentation" On 1st April, 2X01, A Ltd. issued a 10% convertible debenture with a face value of 1,000 maturing on 31st March, 2X11. The debenture is convertible into equity share of A Ltd. at the option of the holder at a conversion price of 25 per share. Interest is payable half-yearly in cash. At the date of issue, A Ltd. could have issued non-convertible debt with a ten-year term bearing a coupon interest rate of 11%. On 1st April, 2X06, the convertible debenture has a fair value of 1,700. A Ltd. makes a tender offer to the holder of the debenture to repurchase the debenture for 1,700, which the holder accepts. On the date of repurchase, A Ltd. could have issued non-convertible debt with a five-year term bearing a coupon interest rate of 8%. Required How does A Ltd. account for the repurchase?
Suggested Answer and Working Notes:
In the financial statements of A Ltd., the carrying amount of the debenture is allocated on issue as follows: ₹ Liability component Present value of 20 half-yearly interest payments of 50, discounted at 11% (50x 11.95) 598 Present value of 1,000 due in 10 years, discounted at 11%, compounded half-yearly (₹ 1,000 x 0.342) 342 940 Equity component Difference between - 1,000 total proceeds and 940allocated above 60 Total proceeds 1,000 The repurchase price is allocated as follows: Carrying Value (₹) Fair Value (₹) Difference (₹) Liability component: Present value of 10 remaining half-yearly interest Payments of 50, discounted at 11% and 8% respectively 377 406 Present value of 1,000 due in 5 years, discounted at 11% and 8%, compounded half yearly, respectively 585 676 962 1,082 (120) Equity component 60 618 (558) Total 1,022 1,700 (678) A Ltd. recognises the repurchase of the debenture as follows: (₹) Liability component Dr. 962 Debt settlement expense (P&L) Dr. 120 To Cash 1,082
Topics: Ind AS 109, General
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