Page 49 - 23. COMPILER QB - IND AS 109_32

Date Particulars Debit Credit
(Being preference shares converted in equity
shares and remaining equity component is
recognised as securities premium)

Q32 (Nov 19 - 10 Marks)
st
Vedika Ltd. issued 80,000 8% convertible debentures of Rs 100 each on 1 April, 2015. The debentures are due
for redemption on 31 March, 2019 at a premium of 20%, convertible into equity shares to the extent of 50%
st
and balance to be settled in cash to the debenture holders. The interest rate on equivalent debentures without
conversion right was12%. The conversion to equity qualifies as fixed for fixed.
You are required to separate the debt and equity components at the time of issue and show the accounting
entries in Vedika Ltd.'s books at initial recognition only. The following present values of Rupee 1 at 8% and
12% are provided for a period of 5 years.

Interest rate Year 1 Year 2 Year 3 Year 4 Years 5
8% 0.923 0.853 0.789 0.731 0.677
12% 0.887 0.788 0.701 0.625 0.557

SOLUTION
st
Computation of debt component of convertible debentures on 1 April, 2015
Particulars Amount
(Rs)

Present value of principal amount repayable after 4 years
(A) 80,00,000 x 50% x 120% x 0.625 (12% discount factor) 30,00,000
(B) Present value of interest [8,00,000 x 80% x 3.001] (4 years cumulative 10% discount factor) 19,20,640
Total present value of debt component (A) + (B) 49,20,640

Issue proceeds from convertible debentures 80,00,000
Value of equity component 30,79,360

Journal entry at initial recognition
Particulars Dr. Cr. Amount
Amount (Rs)

(Rs)
Bank A/c Dr. 80,00,000
To 8% Debentures A/c (liability component) 49,20,640

To 8% Debentures A/c (equity component) 30,79,360
(Being disbursement recorded at fair value)
Note: The question has been solved on the basis of the discounting factors given in the question.

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