CA FINAL FR IndAS 33 Illustrtion 14(https://resource.cdn.icai.org/87838bos-280825-final-ch8-u2.pdf) :
Question: An entity issues 2,000 convertible bonds at the beginning of Year 1. The bonds have a three-year
term and are issued at par with a face value of 1,000 per bond, giving total proceeds of
2,000,000. Interest is payable annually in arrears at a nominal annual interest rate of 6 per
cent. Each bond is convertible at any time up to maturity into 250 ordinary shares. The entity has
an option to settle the principal amount of the convertible bonds in ordinary shares or in cash.
When the bonds are issued, the prevailing market interest rate for similar debt without a
conversion option is 9 per cent. At the issue date, the market price of one ordinary share is 3.
Income tax is ignored. Entity has accounted for the convertible instrument using the principles of
Financial Instruments.
Interest @ 6% for the year has already been adjusted in the profit attributable to shareholders.
Calculate basic and diluted EPS when
Profit attributable to ordinary equity holders
of the parent entity Year 1
1,000,000
Ordinary shares outstanding 1,200,000
Convertible bonds outstanding 2,000

solution:
Assumption: Entity intends to settle only interest in cash
Allocation of proceeds of the bond issue:
Liability component (Refer Note 1) ` 303,755
+Equity component ` 1,696,245
= 2,000,000
The liability and equity components would be determined in accordance with Ind AS 32. These
amounts are recognised as the initial carrying amounts of the liability and equity components. The
amount assigned to the issuer conversion option equity element is an addition to equity and is not
adjusted.
Basic earnings per share Year 1:
1,000,000/1,200,000
= 0.83 per ordinary share
Diluted earnings per share Year 1:
It is presumed that the issuer will settle the contract by the issue of ordinary shares. The dilutive
effect is therefore calculated in accordance with the Standard.
(`1,000,000 + `27,338)/
(1,200,000 + 500,000)
= ` 0.60 per ordinary share
Notes:
1. This represents the present value of the interest discounted at 9% – ` 120,000 payable
annually in arrears for three years. ` 2,000,000 assumed to be settled in equity since option
is with the entity will not form part of liability.
2. Profit is adjusted for the accretion of ` 27,338 (`303,755 x 9%) of the liability because of the passage
of time.
3. 500,000 ordinary shares = 250 ordinary shares x 2,000 convertible bonds.

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