Carry a Nominal Interest - Exchanged for Equity Shares - Accounting and Finance Assignment Help

Assignment Task :

V Co issued $10 million convertible loan notes on 1 October 2018 that carry a nominal interest (coupon) rate of 5% per annum. They are redeemable on 30 September 2021 at par for cash or can be exchanged for equity shares in V Co on the basis of 20 shares for each $100 of loan. A similar loan note, without the conversion option, would have required M Co to pay an interest rate of 8%. 
The present value of $1 receivable at the end of each year, based on discount rates of 5% and 8% can be taken as: 

(i) Explain why the nominal interest rate on the convertible loan note is 5%, but for the non-convertible loan note would be 8%. 
(ii) Prepare extracts to show how the loan notes and the finance charge should be treated by V Co in its financial statements for the year ended 30 September 2019. 
(iii) During the year ended 31 December 2018, TH Co issued $2 million convertible debentures carrying interest at 7%. The debentures are convertible into ordinary shares at 31 December 2022 at the option of the holders. 
 
Explain how TH Co should deal with the above in its statement of financial position for the year ended 31 December 2018. 
 

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