IE 47-50 Example 12 Amendment terms to early induce conversion

Last Updated on 12/02/2020 by 75385885

IAS 32 Financial Instruments: PresentationIE 47-50 Example 12 Amendment terms to early induce conversion

IE 47-50 Example 12 Amendment terms to early induce conversion

Accounting for compound financial instruments

Amendment of the terms of a convertible instrument to induce early conversion

IE47 The following example illustrates how an entity accounts for the additional consideration paid when the terms of a convertible instrument are amended to induce early conversion.

IE48 On 1 January 20X0, Entity A issued a 10 per cent convertible debenture with a face value of CU1,000 with the same terms as described in Example 11. On 1 January 20X1, to induce the holder to convert the convertible debenture promptly, Entity A reduces the conversion price to CU20 if the debenture is converted before 1 March 20X1 (ie within 60 days).

IE49 Assume the market price of Entity A’s ordinary shares on the date the terms are amended is CU40 per share. The fair value of the incremental consideration paid by Entity A is calculated as follows:

Number of ordinary shares to be issued to debenture holders under amended conversion terms:

Number of ordinary shares to be issued to debenture holders under amended conversion terms:

Face amount CU1,000
New conversion price (price per share) CU20
Number of ordinary shares to be issued on conversion: 1,000 / 20 = 50

Number of ordinary shares to be issued to debenture holders under original conversion terms:

Face amount CU1,000
Original conversion  price (price per share) CU25
Number of ordinary shares to be issued on conversion: 1,000 / 25 = 40
Number of incremental ordinary shares issued upon conversion 10

Value of incremental ordinary shares issued upon conversion

CU 40/per share x 10 incremental shares CU400

IE50 The incremental consideration of CU400 is recognised as a loss in profit or loss.

Source EU rules on financial information disclosed by companies

 

Last Updated on 12/02/2020 by 75385885

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IE 47-50 Example 12 Amendment terms to early induce conversion IE 47-50 Example 12 Amendment terms to early induce conversion IE 47-50 Example 12 Amendment terms to early induce conversion IE 47-50 Example 12 Amendment terms to early induce conversion IE 47-50 Example 12 Amendment terms to early induce conversion IE 47-50 Example 12 Amendment terms to early induce conversion IE 47-50 Example 12 Amendment terms to early induce conversion IE 47-50 Example 12 Amendment terms to early induce conversion IE 47-50 Example 12 Amendment terms to early induce conversion IE 47-50 Example 12 Amendment terms to early induce conversion

On 1 January 20X0, Entity A issued a 10 per cent convertible debenture with a face value of CU1,000 with the same terms as described in Example 11. On 1 January 20X1, to induce the holder to convert the convertible debenture promptly, Entity A reduces the conversion price to CU20 if the debenture is converted before 1 March 20X1 (ie within 60 days). On 1 January 20X0, Entity A issued a 10 per cent convertible debenture with a face value of CU1,000 with the same terms as described in Example 11. On 1 January 20X1, to induce the holder to convert the convertible debenture promptly, Entity A reduces the conversion price to CU20 if the debenture is converted before 1 March 20X1 (ie within 60 days).

On 1 January 20X0, Entity A issued a 10 per cent convertible debenture with a face value of CU1,000 with the same terms as described in Example 11. On 1 January 20X1, to induce the holder to convert the convertible debenture promptly, Entity A reduces the conversion price to CU20 if the debenture is converted before 1 March 20X1 (ie within 60 days). On 1 January 20X0, Entity A issued a 10 per cent convertible debenture with a face value of CU1,000 with the same terms as described in Example 11. On 1 January 20X1, to induce the holder to convert the convertible debenture promptly, Entity A reduces the conversion price to CU20 if the debenture is converted before 1 March 20X1 (ie within 60 days).

On 1 January 20X0, Entity A issued a 10 per cent convertible debenture with a face value of CU1,000 with the same terms as described in Example 11. On 1 January 20X1, to induce the holder to convert the convertible debenture promptly, Entity A reduces the conversion price to CU20 if the debenture is converted before 1 March 20X1 (ie within 60 days). On 1 January 20X0, Entity A issued a 10 per cent convertible debenture with a face value of CU1,000 with the same terms as described in Example 11. On 1 January 20X1, to induce the holder to convert the convertible debenture promptly, Entity A reduces the conversion price to CU20 if the debenture is converted before 1 March 20X1 (ie within 60 days).