Question 2

Medicworld Ltd is a company that specializes in medical research. During 2016, a breakthrough was made in one of the research projects. To continue with the research, the company needed to purchase additional machines. The directors decided to fund them by issuing convertible bonds rather than obtaining finance from the bank.

Subsequently, Medicworld issued 150 5-year convertible bonds at a par value of N$750 per bond on 1 January 2017. Interest was payable annually in arrears at 4% per annum. Each bond could be converted into 20 ordinary shares at the discretion of the bondholder at any point during the life of the instrument. Medicworld paid lawyers N$10 000 to issue the bond. The company recognized the equity portion of the transaction costs in the convertible bond reserve.

The effective rate of interest is 7.654% per annum.

Required:

(a) Provide the journal entries to account for the convertible bond in 2017 and 2018. Round amounts to the dollar.

(b) Prepare all the required disclosure in relation to the bond at 31 December 2018. Comparatives are required.