QUESTION 1 - Issue of Convertible Loan Stocks Glade Bhd. issued 4,000 6% convertible bonds on 1 January 2016 with a face value of RM1,000 per bond. The maturity period of the convertible bonds is three years. Each loan stock is convertible at any time upon maturity into 500 ordinary shares. On 1 January 2016 Glade Bhd. also issued RM15,000,000 5% Debentures of RM15,000,000 at a discount of 10%. Upon the issuance of the debentures, transaction cost amounting to RM350,000 was incurred. The debentures were redeemable at the face value. On 31 December 2016, the market price of the debentures was RM14,000,000 and a year later, on 31 December 2017 it had dropped by RM200,000. Glade Bhd. subsequently measured the debentures based on its fair value. All interests payable by Glade Bhd. were paid at the end of each financial year on 31 December. On 1 January 2016, upon the issuance of the loan stocks and debentures, the prevailing market interest rate for similar debt (without conversion) was 9% and the relevant discount factors were as follows: Year Discount Factor at 9% 2016 0.9174 2017 0.8417 2018 0.7722 Required: 1. Discuss how Glade Bhd. shall recognise the above financial instruments in its financial statements in accordance with the approved financial reporting standards. State the basis underlying it. (6 marks) 2. Prepare the extracts of Statement of Profit and loss and Statement of Financial Position of Glade Bhd. for the year 2016, 2017 and 2018 (prior to the settlement of the loan stocks) (9 marks) 3. Show the relevant journal entries (including narrations) to record all the transactions related to the 6% Convertible Loan Stocks in the books of Glade Bhd, for the year 2016. (5 marks) 3. Assuming that at the end of the maturity period in year 2018, all the loan stocks shares were to be converted into ordinary shares. Show how these transactions shall be recorded in the books of Glade Bhd. (3 marks) 4. Show the relevant journal entries to record all the transactions related to the 5% Debentures in the books of Glade Bhd. for the year 2016 and 2017. (5 marks) QUESTION 1 - Issue of Convertible Loan Stocks Glade Bhd. issued 4,000 6% convertible bonds on 1 January 2016 with a face value of RM1,000 per bond. The maturity period of the convertible bonds is three years. Each loan stock is convertible at any time upon maturity into 500 ordinary shares. On 1 January 2016 Glade Bhd. also issued RM15,000,000 5% Debentures of RM15,000,000 at a discount of 10%. Upon the issuance of the debentures, transaction cost amounting to RM350,000 was incurred. The debentures were redeemable at the face value. On 31 December 2016, the market price of the debentures was RM14,000,000 and a year later, on 31 December 2017 it had dropped by RM200,000. Glade Bhd. subsequently measured the debentures based on its fair value. All interests payable by Glade Bhd. were paid at the end of each financial year on 31 December. On 1 January 2016, upon the issuance of the loan stocks and debentures, the prevailing market interest rate for similar debt (without conversion) was 9% and the relevant discount factors were as follows: Year Discount Factor at 9% 2016 0.9174 2017 0.8417 2018 0.7722 Required: 1. Discuss how Glade Bhd. shall recognise the above financial instruments in its financial statements in accordance with the approved financial reporting standards. State the basis underlying it. (6 marks) 2. Prepare the extracts of Statement of Profit and loss and Statement of Financial Position of Glade Bhd. for the year 2016, 2017 and 2018 (prior to the settlement of the loan stocks) (9 marks) 3. Show the relevant journal entries (including narrations) to record all the transactions related to the 6% Convertible Loan Stocks in the books of Glade Bhd, for the year 2016. (5 marks) 3. Assuming that at the end of the maturity period in year 2018, all the loan stocks shares were to be converted into ordinary shares. Show how these transactions shall be recorded in the books of Glade Bhd. (3 marks) 4. Show the relevant journal entries to record all the transactions related to the 5% Debentures in the books of Glade Bhd. for the year 2016 and 2017
