Alan Ltd issued 200,000 200 5% convertible loan notes on 1 January 2019. The loan notes can be converted to equity shares based on 25 shares for each 200 loan note on 31 December 2019 or redeemed at par for cash on the same date. An equivalent loan note without the conversion rights would have required an interest rate of 8%. Alan Ltd has 20 million authorised shares with 8 million shares outstanding. At the end of 2019, the company made a profit before tax and finance cost of 1,500,000. Corporation tax is 12.5%. The present value of 1 receivable at the end of each year based on discount rates of 5% and 8% are;

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

Requirement:

1. Show how the convertible loan notes will reflect in the 2019 financial statements in accordance with IFRS 7 and 9; Financial Instruments and Disclosures.

4 marks

2. In accordance with IAS 33, Earnings Per Share, are the convertible loan notes dilutive? 6 marks

[Total marks 10]