1 Background Spruce, a public limited company, has a reporting date of 31 December 20X2. It prepares financial statements in accordance with IFRS Standards. Spruce has approached its bank to request an increased overdraft facility. The bank wish to review the financial statements for the year ended 31 December 20X2 before making a decision. They will be paying particular attention to Spruce's profit for the period and its level of reported liabilities. A new financial controller has recently started working at Spruce. She is aware that the transactions below have not been accounted for in accordance with International Financial Reporting Standards. She is a member of ACCA but is not sure of her ethical responsibilities. Convertible bonds On 31 December 20X2, Spruce issued 10 million $1 convertible bonds at par and recorded them as equity. The bonds are redeemable for cash on 31 December 20X4 at par, although bondholders can instead opt for conversion in the form of a fixed number of shares. Interest on the bond is payable in arrears at a rate of 7% a year. The interest rate on similar debt without a conversion option is 10%. (4 marks)