At the beginning of year 1, Ebite-L Bhd issued RM10,000,000 convertible unsecured loan stocks (CULS) of RM1,000 per unit at its nominal value. The loan stocks carry a coupon interest rate of 3% per annum and have a term of five years. Each unit of loan stock is convertible at any time up to maturity into 250 ordinary shares of RM1 each. Loan stocks not converted by that date will be redeemed in cash at their nominal value. On the date of the issue, the prevailing market interest rate for similar risk class loan stocks without the conversion option was 10%. Transaction cost amount to RM500,000. Required: a) Show how the proceeds of the loan stocks shall be allocated to the liability component and the equity component. The effective interest rate is 11.22%. b) Assume that all the loan stocks are converted into ordinary shares at maturity, show the journal entry: required on conversion of the loan stocks at maturity i) ii) required if the loan stocks are not converted but redeemed at maturity