Lecture Example 3

Holder Jack Ltd

Issuer Mick Ltd
Face value 1,000,000
Coupon rate 10%
Maturity (years) 4
Transaction costs -
Market rate 8%

Part a
Part b
#1: Bond value @ 1.7.2022
Cash flow Amount Discount factor PV

Fair value
Transaction cost
Bond value @ 1.7.2022

#2: Amortisation schedule

Date OB of bonds Interest revenue Receipt

30.6.2023
30.6.2024
30.6.2025
30.6.2026

Part c Journal entries

Period: 1.7.2022 - 30.6.2023

Period: 1.7.2023 - 30.6.2024

Part d
Type of financial asset
#1: Calculate the fair value of the bonds @ 30.6.2023
Amount Discount factor PV

#2: Book value of the bonds @ 30.6.2023

#3: Calculate the gain/loss

Part e
Type of financial asset
Change in
principal CB of bonds
Lecture example 4

Part a
Type

Part b
Type
Lecture Example 5
Holder Jack Ltd
Issuer Mick Ltd
Face value 1,000,000
Coupon rate 10%
Maturity (years) 4
Transaction costs -
Market rate 8%

Type of financial liability

#1: Bond value @ 1.7.2022
Cash flow Amount Discount factor PV
Coupons 100,000 3.3121 331,210
Face value 1,000,000 0.7350 735,000
Fair value 1,066,210
Transaction cost -
Bond value @ 1.7.2022 1,066,210

#2: Amortisation schedule

Date OB of bonds Interest expense Payment

30.6.2023
30.6.2024
30.6.2025
30.6.2026

Part c Journal entries

Period: 1.7.2022 - 30.6.2023

Period: 1.7.2023 - 30.6.2024

Change in
principal CB of bonds
Lecture Example 6
Issuer Grom Ltd
Proceeds 10,000,000
Maturity (years) 4
Face value (per bond) $ 10.00
Coupon rate 6%
Market rate 8%

Part a
Calculate the liability & equity components
Amount discount factor PV

Convertible bonds (liability)

Convertible bonds (equity)

Journal entry

Part b
Amortised cost
OB of Interest Change in
Date bonds expense Payment principal
30.6.2023
30.6.2024
30.6.2025
30.6.2026

Part c
CB of
bonds