On 1 January 2009 Henry Ltd issued a convertible debenture for 200 million carrying a coupon interest

Question:

On 1 January 2009 Henry Ltd issued a convertible debenture for €200 million carrying a interest rate of 5%. The debenture is convertible at the option of the holders into 10 ordinary shares for each €100 of debenture stock on 31 December 2013. Henry Ltd considered borrowing the €200 million through a conventional debenture that repaid in cash, however, the interest rate that could be obtained was estimated at 7%, therefore Henry Ltd decided on the issue of the convertible.

Required:
Show how the convertible bond issue will be recognised on 1 January 2009 and determine the interest charges that are expected in the statement of comprehensive income over the life of the convertible bond.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...