The goal of this chapter is to discuss how share-based remuneration should be properly accounted for in

a business. In addition, this chapter investigates concerns that pertain to various forms of financial
instruments, such as convertible securities, warrants, and contingent shares, as well as the effects that
these types of financial instruments have on the reporting of earnings per share.

Debt that is convertible into other corporate securities is referred to as convertible bonds. Convertible
bonds are bonds that can be exchanged for other corporate securities.

Taking Into Consideration Convertible Debt

The implementation of the with-and-without technique includes the following steps:

1. To begin, calculate the entire just value of the convertible debt, taking into account both the obligation
and equity components.

2. Identify the liabilities component by determining the net present value of all contractually obligated
future cash flows and then discounting this value using the current market interest rate.

3. Finally, to determine the equity component, start by subtracting the liability component, which was
estimated in the second stage, from the fair value of the convertible debt (the proceeds of the issue).

Conversion Induced Artificially

• The issuer wants to encourage fast conversion. • The issuer is willing to offer additional consideration,
also known as a "sweetener," to induce conversion. • The sweetener represents an expense for the
period.

There is no gain or loss recognised when preference shares are converted or repurchased because there
is an option for the holder of convertible preference shares to convert preference shares into a fixed
number of ordinary shares. Convertible preference shares are reported as part of equity.