In: Accounting
At the beginning of the year, the company issued $500,000 10-year bonds at par. The holder of the bonds can convert $10,000 in bonds into cash based on the performance of the company. Specifically, each $10,000 bond can be converted into cash at the rate of 10% of net income. Draft financial statements reveal net income of $250,000. prepare a report to the board of directors that discusses the recognition, measurement, and presentation of the financial instruments issued.
RESOULTION WITH RESPECT TO CONVERSION OF BONDS
WHERE As, company issued the bonds in accorance with provisions of act at beginning of the year to meet needs of for any financial crunch , At the end of finacial year company performed well reveals net income of $ 250000.presented in statement of profit and loss account.
WHERE AS, one of bond holder coverted $10000 in to 10% of net income, it reduces the some finacial net income earned by company ,it shows some reduction in finacial performance due to effect this transcation i,e $25000 .
WHERE AS,company need to recongnise in $10000 payable 10% of net income in Balancesheet reduction of no of BONDS ON lability side on other hand reduction in bank balance in assets side, The remaining balance of bonds presented accrodingly.
WHERE As, it is material Tansration effects the user of f.s,detail disclosure shown in notes to accounts as per act
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Board of Directors
comapany name