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ACCA FR知识点：金融资产与负债的转换

文章来源：ACCA全球官网

发布时间：2021-09-15 17:00

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Convertibles

Convertible instruments are instruments which give the holder the right to either demand repayment of the principle amount or to write off the debt and instead convert the balance into shares. In the FR exam, you will only have to deal with convertible instruments from the perspective of the issuer, being the person who has received the cash.

Convertible instruments present a special challenge, as these could ultimately result in the issue of shares or the repayment of the loan, but the choice will be in the hand of the holder. As we do not know whether the holder will choose to receive the cash or convert the instrument into shares, we must reflect an element of both within the financial statements. Therefore these are accounted for initially using split accounting, splitting it into the equity and liability components.

The liability component is the first thing to calculate. We work this out by calculating the present value of the payments at the market rate of interest (using the interest on an equivalent bond without the conversion option). The discount rates required to do this will be given to you in the exam.

In reality the market rate of interest will be higher than the coupon rate, being the annual amount payable to the holder of the loan. This is because the holder of the loan is willing to accept a lower rate of annual interest compared to the market, in exchange for the option to convert the loan into shares.

Once the liability component has been calculated, the equity component is then worked out. This is simply a balancing figure, and represents the difference between the cash received and the liability component.

EXAMPLE

Oviedo Co issued $10m 5% convertible loan notes on 1 January 20X1. These will either be repaid at par on 31 December 20X3, or converted into shares on that date. Equivalent loan notes without the conversion carry an interest rate of 8%. Relevant discount rates are shown below.

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it is important to note that the 5% discount rates are a red herring . It is the discount rates for the market rate of interest that are important, i.e. 8%. The only thing we need the 5% for is to work out the annual payment. As these are $10m 5% loan notes, this simply means that Oviedo Co will need to make an annual payment of $500k in relation to these.

Therefore we can work out the value that the market would place on these loan notes by looking at the present value of all the payments, discounted at the market rate of interest. If this is a normal loan, ignoring the conversion, Oviedo Co would pay $500k in years 20X1 to 20X3, and then make a final repayment of $10m on 31 December 20X3.

As the market rate of interest is 8%, the present value of these payments can be calculated. These are calculated in the table below.

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The present value of all of the payments can be seen as $9.229m. This means that Oviedo Co received $10m, but the present value of the payments to be made have an initial value of only $9.229m. As a result, the holders of the loan notes are effectively losing $771k compared to if they had simply given Oviedo Co a normal loan at the market rate of interest.

This $771k is the amount of interest the holders are willing to lose in order to have the option to convert the loan into shares. This is taken as the initial value of the equity element.【点击免费下载>>>更多ACCA学习相关资料】

On 1 January 20X1, the double entry to record the transaction in the records of Oviedo Co are as follows:

Dr Cash $10m – reflecting the full cash received from the issue of the convertibles.

Cr Liability $9.229m – reflecting the present value of the liability on 1 January 20X1

Cr Equity $0.771m – reflecting the value of the equity component.

The equity balance would be held as ‘convertible options’ within other components of equity. Subsequently, this equity amount remains fixed until conversion, but the liability must be held at amortised cost. This must be built back up to $10m over the next 3 years, to reflect the amount which the holder would require if they demand repayment rather than conversion of the loan notes.

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As with the financial liability noted earlier, the interest column is taken to the statement of profit or loss each year as a finance cost.

At the end of the three years, Oviedo Co will either repay the $10m liability, or this will be turned into shares, with the $10m balance and the option balance of $771k transferred to share capital and share premium.

Summary

This article has considered the key issues relating to financial instruments. To perform well at FR, it is essential that candidates are able to identify the potential treatments for financial assets, produce amortised cost calculations and understand the accounting entries required for a convertible instrument. This is one of the most technical areas of the syllabus, but also one of the central areas which will be further developed in Strategic Business Reporting.

Written by a member of the Financial Reporting examining team