Question

On January 1, 2020, Blossom Ltd. issued 820 5-year, 11% convertible bonds at par of $1,000, with interest payable each December 31. Each bond is convertible into 100 common shares, and the current fair value of each common share is $6. Similar straight bonds carry an interest rate of 13%.

Calculate the PV of the debt component by itself. Calculate using any of the following methods: (1) factor tables, (2) a financial calculator, or (3) Excel function PV.

QUESTION:

1) PV of the debt component

2) How should Blossom record the issuance if it follows IFRS? Use the amount you arrived at in part (a) using a financial calculator or Excel.

Date	Account Titles and Explanation	Debit	Credit
January 1	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount

3) How should Blossom record the issuance if it follows ASPE?

Date	Account Titles and Explanation	Debit	Credit
January 1	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount

Answer 1

Solution

Blossom Ltd

1. Computation of the PV of debt component

1. Computation of the PV of debt component Period 1 2 Cash flows $90,200 $90,200 $90,200 $90,200 $90,200 PV factor at Present 13% Value 0.885 $79,827 0.7831 $70,635 0.6931 $62,518 0.6133 $55,320 0.5428 $48,960 $317,260 3 4 5 Debt Portion Note-cash flows = 11% x 820 x $1,000 = $90,200

1. Entries accordance to IFRS and ASPE –

IFRS
Date	Account Titles and Explanation	Debit	Credit
1-Jan-20	Cash	$820,000
	11% Convertible Bonds		$317,260
	Share Premium - Equity Conversion		$502,740
	(To record issue of compound bond)
ASPE
Date	Account Titles and Explanation	Debit	Credit
1-Jan-20	Cash	$820,000
	11% Convertible Bonds		$820,000
	(To record issue of convertible bonds)