IFRS IN PRACTICE

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IFRS IN PRACTICEAccounting for convertible notes2IFRS IN PRACTICE - ACCOUNTING FOR CONVERTIBLE NOTESTABLE OF CONTENTSIntroduction 3The basic requirements of IFRSs 4Example 1 Convertible note in its simplest form 7Transaction costs 8Deferred taxes 9Early conversion 9Early repurchase 9Modification to encourage early conversion 9Example 2 Convertible notes with an embedded derivative liability 10Transaction costs 12Derivative liability 12Scenarios where the conversion feature fails equity classification 13 Ratchet feature 13Convertible note denominated in a foreign currency 13Variable conversion price limited to cap and/or a floor 13Scenarios where the conversion feature still meets equity classification 14 Loyalty bonus issues 14Adjustments from a stock split or bonus issue 14Other common PRACTICE issues 15Conversion price based on the issuer s share price at conversion date 15Fair value of the note is more th

loss volatility. This means that the effect on a number of related arrangements needs to be considered, including: – Other lending agreements, including the effect on key ratios and covenants – Employee remuneration arrangements, including bonus schemes linked to reported profits and share-based payments – Investor communications.

  Volatility