Fall 2010 Class 4

Conversion if it is a early retirement before maturity

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Unformatted text preview: 27,524 ** 1,048,415=(1,000,000-27,524)+75,939 Reporting at the Time of Retirement • If it is a normal retirement at maturity: – treated the same as debt retirement from Chapter treated 15 – Equity components remains in Contributed Surplus Equity because the bond holder decided not to exercise conversion option. conversion • If it is a early retirement before maturity: – Clear any outstanding premiums, discounts, bond Clear issue costs, interest accrued to bondholders issue – Clear “contributed surplus-stock options” – Loss will be allocated to debt retirement costs and Loss share redemption costs share Derivatives Derivatives • Derivative instruments include – – – • Option Forward Future Three characteristics of derivatives: 1. 2. 3. Values changes with underlying instrument Values underlying Require little or no initial investment Require little Settled at a future date Settled future Derivative Reporting Derivative Reporting • Basic principles: a) All derivatives to be recognized on the All recognized Balance Sheet Balance b) All derivatives to be classified and presented All classified as held for trading as c) All derivatives measured/valued at fair value All measured/valued d) All derivative gains/losses recognized in net All income income e) Increased disclosure Increased disclosure Option Option • Options – Call Option • Holder has the right, but not the obligation, to Holder right, to purchase at...
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