Australian Accounting Standards Only

Question 9 Roo Ltd issues 1,000,000 convertible bonds on 1 July 2021. The bonds have a life of four years and a face value of $5each, and they offer interest payable at the end of each financial year, at a rate of 5 per cent per annum. The bonds are issued at their face value and each bond can be converted into one ordinary share in Roo Ltd at any time in the next four years. Organisations of a similar risk profile have recently issued debt with similar terms, without the option for conversion, at a rate of 7 per cent per annum. Required a. Identify the present value of the bonds, and provide the appropriate accounting entries to account for the debt component and the equity component of the convertible bonds (no need for narration). Show your workings. b. Provide the accounting entries if the holders of the convertible bonds elect to convert to ordinary shares at the beginning of the third year of the bonds (no need for narration). Show your workings