FAR570: Scientex Bhd is a listed company with net assets valued at RM500 million. On 1 January 2022: Financial Accounting Assignment, Malaysia

QUESTION 4
Scientex Bhd is a listed company with net assets valued at RM500 million. On 1 January 2022, Scientex Bhd issued 10 million convertible bonds. It was issued at RM1 each with a face value of RM1,000 per bond, giving total proceeds of RM10 million. Interest is payable annually in arrears at a nominal annual interest rate of 4%. Each bond is convertible at any time up to maturity into 200 ordinary shares.

When the bonds were issued, the prevailing market interest rate for similar debts without a conversion option was 9%. At the issuance date, the market price of one ordinary share was RM2.00. The present value for RM1 interest at 4% and 9% related to the bond is as follows:

On the same date, the company acquired equity shares for a fair value of RM5,000,000 at the Singapore Stock Exchange and incurred a transaction cost at RM100,000. The equity shares are measured at fair value through profit or loss. The fair value of the equity shares on 31 December 2022, was stated at RM5,500,000. At the end of the year, the board of directors of Scientex Bhd decided to dispose the equity shares on 31 December 2022, which were quoted at RM5,800,000. The commission fee for selling the equity shares amounted to 2% of selling price.

Required:
a) Calculate the liability and equity components of the convertible bonds for initial recognition. (show workings)

Answer

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