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(a) Determine whether the following financial instruments should be

classified as a financial liability or equity instrument of the respective companies. Give reasons for your answer. (i) Lemon Bhd issues 1,000,000 RM1 convertible loan stock. The loan stocks pay interest at 6.75%. The market rate for similar debt without the conversion option is 9%. The note is not redeemable, but it converts at the option of the holder into shares that will have a value of exactly RM1,100,000. [2 marks] (ii) Peppermint Bhd issues 1,000,000 redeemable preference shares for RM1.00 each. The shares are redeemable at the option of the Peppermint Bhd. The shares carry a cumulative 7% dividend. On 2 January 2020, Peppermint Bhd announces its intention to redeem the shares on 31 December 2022 for cash at 10% premium. [3 marks] (b) Wintergreen Bhd enter into an agreement with a landlord to lease a building for 6 years. The lease rental for the first year is fixed at RM500,000, payable in arrears at the end of the year. 7 Required: Determine whether the lease agreement contains an embedded derivatives if the subsequent lease rentals are: (i) increased at a rate of 7.5% per annum. (Ii) are adjusted for equivalent changes in the property price index

Subject: Accounting, Business

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