On 1 January 2016, Fish Limited had issued 10,000,000 convertible bonds (CB) at par value of $16.00 each to finance its new project. The bonds have a four-year term, and interest is payable at 12% p.a. in arrears. Each bond is convertible at any time to maturity for 20 ordinary shares. The prevailing interest rate for similar debt without the conversion option is 16%. On issuing the bonds, Fish Limited incurred issue costs of $1,044,660. Its accounting policy is to measure financial liabilities at fair value. The effective interest rate on the CB is 16.78%.

(i) Determine how Fish Limited should account for these convertible bonds in its financial statements. (ii) Provide calculations and appropriate journal entries to show the amount that should be recognized in the statement of financial position and income statement in the year ending 31 December 2016.