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Unformatted text preview: are removed from the accounting records
and the new shares issued are recorded at the same amount
(in other words, at the book value of the bonds).
At Date of Exercise of One-half of the Bonds
Convertible bonds payable
Premium on bonds payable
Paid-in capital – excess of par 50,000,000
49,000,000 50,000 bonds × 40 shares × $1 par = $2,000,000 par value
50,000 bonds × 40 shares × $1 par = $2,000,000 par value 14-29 U.S. GAAP vs. IFRS
Convertible Bonds Under IFRS, unlike U.S. GAAP, convertible debt is divided into its liability
and equity elements.
($ in millions) Cash (103% × $100 million)
Convertible bonds payable (value of the debt only)
Equity–conversion option (difference) 103
5 *The discount is combined with the face amount of the bonds. This is the “net
method” – the preferred method under IFRS. Compound instruments such as this one are separated into their liability
and equity components in accordance with IAS No. 32. If the bonds have a separate fair value of $98 million, we record that
amount as the liability and the remaining $5 mill...
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This note was uploaded on 11/19/2013 for the course ACCOUNTING 3100 taught by Professor He during the Fall '10 term at CUNY Baruch.
- Fall '10