On 1 April 20X3, Xtol issued a 5 per cent $50 million convertible loan note at par. Interest is payable annually in arrears on 31 March each year. The loan note is redeemable at par or convertible into equity shares at the option of the loan note holders on 31 March 20X6. The interest on an equivalent loan note without the conversion rights would be 8 per cent per annum. The present values of $1 receivable at the end of each year, based on discount rates of 5 per cent and 8 per cent, are:

Required:

Identify how the above transaction should be treated in the financial statements of Xtol for the year ended 31 March 20X4.

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End of Year 1 2 3 5% 0.95 0.91 0.86 8% 0.93 0.86 0.79