Transcription of IFRS in Practice Accounting for Convertible Notes
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IFRS in Practice Accounting for Convertible Notes
IFRS IN PRACTICEA ccounting for Convertible notes2 IFRS IN Practice - Accounting FOR Convertible NOTESTABLE OF CONTENTSI ntroduction 3 The basic requirements of IFRSs 4 Example 1 Convertible note in its simplest form 7 Transaction costs 8 Deferred taxes 9 Early conversion 9 Early repurchase 9 Modification to encourage early conversion 9 Example 2 Convertible Notes with an embedded derivative liability 10 Transaction costs 12 Derivative liability 12 Scenarios where the conversion feature fails equity classification 13 Ratchet feature 13 Convertible note denominated in a foreign currency 13 Variable conversion price limited to cap and/or a floor 13 Scenarios where the conversion feature still meets equity classification 14 Loyalty bonus issues 14 Adjustments from a stock split or bonus issue 14 Other common Practice issues 15 Conversion price based on the issuer s share price at conversion date 15 Fair value of the note is more than the transaction price 15 Callable Convertible note 15 Convertible Notes issued to management 16 Mandatorily converti
The scope and basic accounting requirements of IFRS 9 are the same as IAS 39 for the purposes of the issuer’s accounting for the convertible instruments discussed below, and so future references in this document are to IAS 32 and IAS 39. IAS 32 contains the definitions of financial liabilities, financial assets and equity.
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