Archie Ltd Issued fiveyear, convertible bonds par $ at The bonds have annual interest, payable annually on December Each $ bond may be converted into common shares, which are currently trading at $ per share. Similar straight bonds were trading at According to an independent evaluator, the conversion rights had a value of $
Instructions
Assume Archie Ltd follows IFRS and uses the residual method and measures the debt first.
a Calculate the amounts to be allocated to the bond and to the conversion rights, respectively.
b Prepare the journal entry at the date of issuance of the bonds under IFRS.
c Assume that after three years, when the carrying amount of the bonds was $ half of the convertible bonds were converted before the bond maturity date. Prepare the journal entry to record the conversion.
d How many shares were issued at the conversion?
Assume now that Archie follows ASPE and has chosen to value the equity component at zero.
e What alternatives does Archie have to record the issuance of the bonds. Show the alternative journal entries.
