On 1 January 2020 D Co issued a $50m three-year convertible bond at par; there were no issue costs. The bond is redeemable three years later at its par value.

The bonds pay interest annually in arrears at an interest rate of 10%. Bondholders may opt for conversion in the form of shares. The terms of the conversion are two 25-cent equity shares for every $1 owed to each bondholder on 1 January 2023.

The prevailing market interest rate for a three year bond that has no right of conversion is 15%

D Co also holds investments in ordinary shares that are held for short term speculation.

Required:

(a) Explain how the bond will initially be recorded in the accounts of D CO

(b) Show the relevant extracts from the statement of financial position at 1 January 2020 for the convertible bond

(c) How should D Co classify and account for the ordinary shares, both initially and in subsequent accounting periods

K Co purchases a bond for $441,014 on 1 January 2019. It will be redeemed on 31 December 2022 for $600,000. The bond is held at amortised cost and carries no coupon. The effective interest rate is 8%.

Required:

Calculate the value of the bond for the statement of financial position as at 31 December 2019, and the finance income for 2019 shown in profit or loss.