Expected Questions For Final Nov 2011!!!!!

[THARENDRA LUNIA]

Financial Reporting

Accounting For Financial Instruments


1. Hena Limited issued 1 million 10.5% 10 year callable convertible
bond at RS 1000. Straight bonds (NCD) of similar maturity would carry
12% coupon. Each bond may be converted any time into 40 equity
shares of Hena Limited. How will Hena Ltd present the bond issue in
Balance Sheet?(Answered)


2. At the beginning of year 1, an enterprise issued 20,000 convertible
debentures with face value Rs. 100 per debenture, at par. The
debentures have six-year term. The interest at annual rate of 9% is
paid half-yearly. The bondholders have an option to convert half of
the face value of debentures into 2 ordinary shares at the end of year
3. The bondholders not exercising the conversion option will be repaid
at par to the extent of Rs. 50 per debenture at the end of year 3. The
non-convertible portion will be repaid at 10% premium at the end of
year 6. At the time of issue, the prevailing market interest rate for
similar debt without conversion option was 10%. Compute value of
embedded derivative.(Answered)


3. An entity has a portfolio of prepayable loans whose coupon and
effective interest rate is 10 percent and whose principal amount and
amortised cost is Rs. 10,000. It enters into a transaction in which,
in return for a payment of Rs. 9,115, the transferee obtains the right
to Rs. 9,000 of any collections of principal plus interest thereon at
9.5 per cent. The entity retains rights to Rs. 1,000 of any
collections of principal plus interest thereon at 10 per cent, plus
the excess spread of 0.5 per cent on the remaining Rs. 9,000 of
principal. Collections from prepayments are allocated between the
entity and the transferee proportionately in the ratio of 1:9, but any
defaults are deducted from the entity’s interest of Rs. 1,000 until
that interest is exhausted. The fair value of the loans at the date of
the transaction is Rs. 10,100 and the estimated fair value of the
excess spread of 0.5 per cent is Rs. 40.(Answered)

By- Tharendra Lunia
( Luniya Brothers Knowledge Gallery)
For Answer Please Visit http://luniyabrothersknowledgegallery.blogspot.com/p/expected-question-for-nov-2011.html