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ACCOUNTING FOR FINANCIAL LIABILITIES

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Prit Shah

32 Points Posted on 19 June 2020

What is the accounting treatment of Convertible bonds which are redeemable by issuing variable number of equity instruments ?
Should it be considered as embeded derivative ?

(from issuer's point of view)

Replies (3)

Quick Summary

This discussion clarifies the accounting treatment for convertible bonds redeemable by issuing a variable number of equity instruments from the issuer's perspective. It confirms these are treated as financial liabilities, not embedded derivatives. The process involves recognising the bond liability upon issuance and then derecognising it upon redemption by issuing shares, crediting Share Capital accordingly.

yasaswi gomes

My grammar is 💯 good I

5110 Points Posted on 19 June 2020

These are not embedded derivatives, but financial liabilities. IndAS does not consider hedge accounting for derivatives like futures and options not unless a standard requires to or permits it.

Bank a/c

To Bond liability a/c

when you issue shares on redemption date instead of cash, it should be like derecognise liability and

Bond liability a/c

To Share Capital a/c

Here, Share Capital is credited because, Share are issued to bond holder. Then, bank is not adjusted because, the liability to pay cash through share settlement is still existing.