ACCA Applied Skills · Financial Reporting · Financial instruments
Lyra Co's convertible bond is converted early by the holders into 2,000,000 ordinary shares of $1 nominal value each. At the date of conversion the liability component has a carrying amount of $9,800,000 and the equity component recognised on issue was $771,500. The equity component is transferred to share premium on conversion, and no gain or loss is recognised. What total amount is credited to share premium?
Share premium is credited with $8,571,500. On conversion the liability carrying amount of $9,800,000 and the existing equity component of $771,500 together total $10,571,500. Of this, $2,000,000 is share capital at nominal value, and the remainder goes to share premium, with no gain or loss.
- A$8,571,500Correct
- B$7,800,000
- C$8,000,000
- D$10,571,500
Explanation
Total equity after conversion = liability 9,800,000 + equity component 771,500 = 10,571,500. Deduct share capital of 2,000,000 nominal, leaving 8,571,500 for share premium. $7,800,000 ignores the equity component, $8,000,000 uses the face value of the bond, and $10,571,500 forgets to deduct share capital.
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