Page 46 - 23. COMPILER QB - IND AS 109_32

The present value of Rs1 receivable at the end of each year based on discount rates of 7% and 10% can be
taken as:

End of Year 1 2 3 4 5
7% 0.94 0.87 0.82 0.76 0.71
10% 0.91 0.83 0.75 0.68 0.62
SOLUTION

Since the liability is outstanding on the date of Ind AS transition, Growth Ltd. is required to split the
convertible debentures into debt and equity portion on the date of transition. Accordingly, first the liability
component will be measured discounting the contractually determined stream of future cash flows (interest
and principal) to present value by using the discount rate of 10% p.a. (being the market interest rate for
similar debentures with no conversion option)

Calculation of Equity & Liability component on initial recognition
(Rs)
Present Interest payments for 5 years on debentures by applying 13,26,500
annuity factor [(50,000 x 7% x 100) x 3.79]
PV of principal repayment (including premium) (50,000x110x0.62) 34,10,000
Total liability component 47,36,500
Total equity component (Balancing figure) 2,63,500
Total proceeds from issue of Debentures 50,00,000
Thus, on the date of transition, the amount of Rs 50,00,000 being the amount of debentures will split as
under:
Debt Rs 47,36,500
Equity Rs 2,63,500

Q31 (May 19 - 12 Marks)

st
Perfect Ltd. issued 50,000 Compulsory Cumulative Convertible preference Shares (CCCPS) as on 1 April, 2017
@ Rs 180 each. The rate of dividend is 10% payable at the end of every year. The preference shares are
convertible into 12,500 equity shares (Face value Rs 10 each) of the company at the end of 5th year
from the date of allotment. When the CCCPS are issued, the prevailing market interest rate for similar debt
without conversion option is 15% per annum.
Transaction cost on the date of issuance is 2% of the value of the proceeds. Effective Interest Rate is

15.86%. (Round off the figures to the nearest multiple of Rupee)
Discounting Factor @ 15%
Year 1 2 3 4 5
Discount Factor 0.8696 0.7561 0.6575 0.5718 0.4971

You are required to compute Liability and Equity Component and Pass Journal Entries for entire term of
arrangement i.e. from the issue of Preference Shares till their conversion into Equity Shares. Keeping in view
the provisions of relevant Ind AS.
SOLUTION

This is a compound financial instrument with two components – liability representing present value of future
cash outflows and balance represents equity component.
Total proceeds = 50,000 Shares x 180each = 90,00,000

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