COMPOUND FINANCIAL INSTRUMENT

I. BONDS WITH ISSUED SHARE WARRANTS

A. Upon issuance

“Split Accounting”:
Total Consideration – FV of Bonds = Allocation to “Share Warrants Outstanding”

FV of Bonds = FV of Bonds ex-warrant OR PV of future cash flows using effective interest rate.

B. Subsequent to issuance

1. Share Warrants Exercised

Total
Cash Received consideration Share Capital
for the
issuance of
Share Warrants applied shares Share Premium

2. Share Warrants Not Exercised

Upon expiration of the warrants:
Share Warrants Outstanding Share Premium – Unexercised Warrants

II. CONVERTIBLE BONDS

A. Upon original issuance of bonds

“Split Accounting”:
Total Consideration – FV of Bonds = Allocation to “Share Premium – Conversion Privilege”

FV of Bonds = FV of Bonds ex-warrant OR PV of future cash flows using effective interest rate.

B. Subsequent to issuance
1. Bonds Converted
Book Value of
Bonds as of Total
Conversion Date consideration Share Capital
for the
issuance of
Share Premium – shares
Share Premium
Conversion
privilege applied

Notes:
a. Remember to amortize first to determine the correct book value of the bonds as of date of
conversion (even if conversion is done other than the interest dates)
b. If only a portion of the bonds is converted, prorate remaining unamortized premium/discount
 c. If Interest is not paid, add such amount to arrive at the total consideration for the issuance of
shares.
Interest Expense ---------------------------- XXX
Share premium – issuance ----------------- XXX
(instead of: Accrued interest payable)
d. Any cost incurred in relation to conversion should be deducted from total consideration
Share premium – issuance ---------------------------- XXX
(instead of: Conversion Expenses)
Cash --------------------------------------------------------------- XXX

2. Bonds extinguished instead of being converted

2.1 Extinguishment at Maturity

a. Conversion privilege relating to unconverted bonds should be cancelled:

Share Premium – Conversion Privilege Share Premium – Issuance
b. There is no gain/loss on extinguishment since the bonds are paid at face value.

2.2 Retirement before Maturity

FV of bonds w/o CA of Bonds

conversion privilege (This amount)
(at date of Gain (Loss) on extinguishment
Total extinguishment)
Payment

Excess:
Cancelled portion of SP – Conv. Priv.
SP – Conv. Priv. (This amount)
Share Prem. – issuance