On 1 October 2019, Bertrand issued 10 million x 1 convertible loan notes at par which carry a nominal interest (coupon) rate of 5% per annum. The loan notes are redeemable on 30 September 2022 at par for cash or can be exchanged for equity shares. A similar loan note, without the conversion option, would have required Bertrand to pay an interest rate of 8%.

The present value of 1 receivable at the end of each year, based on discount rates of 5% and 8%, can be taken as:

5% 8%

End of year 1 095 093

2 091 086

3 086 079

How would the convertible loan appear in Bertrands statement of financial position on initial recognition (1 October 2019)?

Equity Non-current liability

000 000

1. 810 9,190
2. nil 10,000
3. 10,000 nil
4. 40 9,960