Firm A Firm B

Face value - Face value -

RM1,000,000
Maturity - 10 years
Coupon rate - 8% annual
Effective rate - 7%
Bond value: RM1,070,236
RM1,000,000
Maturity - 10 years
Coupon rate - 8% annual
Effective rate - 9%
Bond value: RM935,823

561886.4 = RM80k x PVA(7% , 10) = RM80k x PVA(9% , 10)

508350 + RM1m x PV(7% , 10) + RM1m x PV(9% , 10)

At premium At discount
 Opening Eff. interest Coupon Closing
Amortisation
Period Balance 7% payment Balance
a b = 7% x (a) c d = (b) + (c) e = (a) + (d)
1 1,070,236.40 74,916.55 (80,000.00) (5,083.45) 1,065,152.95
2 1,065,152.95
3
4
5
6
7
8
9
10
JE: JE:
Bond issuance (the same) Year 9 coupon/interest payment

Year 1 coupon/interest payment Year 10 coupon/interest payment

Year 2 coupon/interest payment At maturity (the same)

 Eff. interest Coupon Amortisatio
Balance Balance
Period 9% payment n
a b = 9% x (a) c d = (b) + (c) e = (a) + (d)
1 935,822.80 84,224.05 (80,000.00) 4,224.05 940,046.85
2 940,046.85
3
4
5
6
7
8
9
10
JE: JE:
Bond issuance (the same) Year 9 coupon/interest payment

Year 1 coupon/interest payment Year 10 coupon/interest payment

Year 2 coupon/interest payment At maturity (the same)

Firm B
Face value -
RM1,000,000
Maturity - 10 years
Coupon rate - 8% annual
Effective rate - 9%
Bond value: RM935,823 Transaction cost RM45,000

New PV =
Allocation of amortisation:
 Amortisation
Beginning Effective Coupon Amortisation Amortisation Ending
Period of discount of Discount of TC
amount interest interest paid amount
and TC
a b = 9.7584% x a c d=b+c 58.78% 41.22% e=a+d
1 890,822.80 86,930.05 (80,000) 6,930.05 4,073.48 2,856.57 897,752.85
2 897,752.85
3
4
5
6
7
8
9
10
JE: JE:
Bond issuance (the same) Year 9 coupon/interest payment

Year 1 coupon/interest payment Year 10 coupon/interest payment

At maturity (the same)

JE: Alternative but not recommended
Issue bond
Dr. Bank RM890,822.80
Cr. FL - Bond RM845,822.80 (net of D and TC)
Cr. Bank RM45,000

Year 1 coupon/interest payment

Dr. Bond interest RM86,930.05
Cr. FL - Bond RM6,930.05
Cr. Bank RM80,000

At maturity (the same)

Dr. FL - Bonds RM1,000,000 (increased to nominal value)
Cr. Bank RM1,000,000
CONVERTIBLE BONDS
 MFRS 132.28

Guideline:
✓ Separate between liability component and equity component
✓ Liability component measured at PV
✓ Equity component measured as residual amount
Equity component of a convertible bond
= Nominal value of convertible bond – PV of similar risk
bond without conversion option

When issue:
On 1 Jan 2023, BUNI Bhd. issued 1,000,000 units of
convertible bonds at RM1 per unit. Transaction cost was at
RM2 million. The bond has a coupon of 2% payable at the
end of each year over 5 years. The bond can be converted
into ordinary shares at any time at the conversion cost of
RM2. The market price of the ordinary shares at the time of
issue of the bond was RM1.60 per share. Bonds not
converted will be redeemed at its nominal value of RM1 at
maturity. (Issued at nominal price)
A market interest rate of a similar risk-class bonds without
the conversion feature is 8% .

Required:
1. Show the journal entry for the issuance of the bond
2. Show extract from the financial statement in relation to
the issuance
how to do?