1. On 1 January 2021 Pohutukawa Ltd issued 100,000, $1, 6% convertible debentures. The maturity of the debentures is 3 years and interest is paid at the end of the year. Each debenture is convertible at the option of the holder into one share of the company at any time during the three-year maturity period. The market interest rate on equivalent debentures without the conversion feature is 7%. The debenture holders converted all the debentures into shares of the company on 31 December 2022. The year end is 31 December.

Required

1. Allocate the compound instrument into its liability and equity components. (5 Marks)

Answer: Allocation between liability and equity components
Year	Amount ($)	Present Value Factor at (write down the discount rate here)	Present Value ($)

1. Briefly explain the conceptual rationale for the allocation method you used in (a) above. (2 Marks)

Answer

1. Prepare the amortization table for three years 2021-2023. (5 Marks)

Answer: Amortization table
Date	Interest expense ($)	Cashflow ($	Liability balance ($)

1. Give journal entries in the books of Pohutukawa Ltd to record the above transactions during 2021-2022. Show all the workings. (8 Marks)

Date		Dr/Cr	Debit amount ($)	Credit amount ($)