Question 2. This question is compulsory V Co issued $10 million convertible loan notes on 1 October 2018 that carry a nominal interest (coupon) rate of 5% per annum. They are redeemable on 30 September 2021 at par for cash or can be exchanged for equity shares in V Co on the basis of 20 shares for each $100 of loan. A similar loan note, without the conversion option, would have required M Co 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 End of year 5% 8% 1 0.95 0.93 2 0.91 0.86 3 0.86 0.79 Required: (i) i Explain why the nominal interest rate on the convertible loan note is 5%, but for the non-convertible loan note would be 8%. (ii) Prepare extracts to show how the loan notes and the finance charge should be treated by V Co in its financial statements for the year ended 30 September 2019. (iii) During the year ended 31 December 2018, TH Co issued $2 million convertible debentures carrying interest at 7%. The debentures are convertible into ordinary shares at 31 December 2022 at the option of the holders. TH Co believes the conversion rights will be exercised and as a result has treated the debentures as part of equity. The annual return to the investors has been treated as a distribution. Explain how TH Co should deal with the above in its statement of financial position for the year ended 31 December 2018