Problem
Weepy Bhd's (Weepy) financial year end is 31 December 2013. As the chief accountant, the following matter requires your immediate attention before the financial statements are presented to the board of directors for approval.
Weepy issued a 3% RM200,000 two-year convertible bond at par on 1 January 2013 with interest payable annually in arrears. The terms of the convertible bond is that the holder of the bond, on redemption date, has the option to convert the bond to equity shares at the rate of 10 shares per RM100 debt.
The prevailing market interest rate for a two-year bond without conversion option is 8%. Weepy wishes to use the amortised cost to account for this instrument.
The present value factor based on discount rates of 3% and 8% at the end of each year are:
|
End of year
|
3.00%
|
8.00%
|
|
1
|
0.97
|
0.93
|
|
2
|
0.94
|
0.86
|
Discuss the appropriate accounting treatment as required under MFRS 132 and MFRS 9. You are also required to support your comments with the appropriate calculations.