Question 1: Convertible notes issue including financial liability at amortised cost On 1 July 2021, Parade Ltd issues 2000 convertible notes. The notes have a three-year term and are issued at par with a face value of $1000 per note, giving total proceeds at the date of issue of $2 million. The notes pay interest at 4% p.a. annually in arrears. The holder of each note is entitled to convert the note into 250 ordinary shares of Parade Ltd at contract maturity. When the notes are issued, the prevailing market interest rate for similar debt (similar term, similar credit status of issuer and similar cash flows) without conversion options is 8% p.a. Hence at the date of issue: Present value of the principal: $2 million payable in 3 years' time: Present value of the interest: $80 000 ($2 million x 4%) payable annually in arrears for 3 years Total contractual cash flows $1587664 206 168 $1793832 Required Prepare the journal entries of Parade Ltd to account for the convertible notes for each year ending 30 June under the following circumstances. 1. The holders do not exercise their option and the note is repaid at the end of its term. 2. The holders exercise their conversion option at the expiration of the contract term.

On 1 July 2021, Parade Ltd issues 2000 convertible notes. The notes have a three-year term and are issued at par with a face value of \\( \\$ 1000 \\) per note, giving total proceeds at the date of issue of \\$2 million. The notes pay interest at \4 p.a. annually in arrears. The holder of each note is entitled to convert the note into 250 ordinary shares of Parade Ltd at contract maturity. When the notes are issued, the prevailing market interest rate for similar debt (similar term, similar credit status of issuer and similar cash flows) without conversion options is \8 p.a. Hence at the date of issue: Required Prepare the journal entries of Parade Ltd to account for the convertible notes for each year ending 30 June under the following circumstances. 1. The holders do not exercise their option and the note is repaid at the end of its term. 2. The holders exercise their conversion option at the expiration of the contract term