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IAS 32Workpapers (Step 4 of 5)

Workpaper assignment

Step 4 of 5
Mission · workpaperWorkpaper · IAS 32L3 · Advanced

Documents

Company profile and case conventions

Memo

Company profile and case conventions

Tessora SA (fictitious entity) closes its accounts on 31 December; its functional currency is the euro. Case conventions: amounts in EUR; the issue proceeds are the fair value of the instrument as a whole; coupons are paid in arrears; case convention (pedagogical assumption, not attributed to IAS 32): all holders convert at maturity and the tax effect is ignored. Treatment of conversion (IAS 32): the carrying amount of the liability is reclassified to equity, here to share capital and premium (accounts: case convention), with no gain or loss, and the original equity component stays in equity.

Compound instrument: split into a liability component and an equity component, entries for the issue, interest, coupon and conversion

Convertible bond: split into a liability component and an equity component, interest charge, carrying amount and conversion at maturity

4 documents9 sections to document
0 / 6 sections completed
Guided mode

Section 1 of 9

Objective

In progress
Section brief
What to document
The engagement, its scope and the working mode chosen.
Why
A workpaper answers one precise question: framing it avoids off-topic work.
How
Read the objective and the assignment, then choose the mode (guided, semi-guided, professional).
Expected result
You know which question the workpaper must settle, and for which reporting date.
Your role
Preparer of the IAS 32 workpaper
Level
Advanced
Estimated time
≈ 75 min
Progress
0 / 5 steps done (review excluded)

Context

Tessora SA (fictitious entity) issued a convertible bond on 1 January 20X6 to finance the extension of its plant. You prepare the accounting for the issue, the two following years and the conversion at maturity, on 31 December 20X7.

Assignment

Split and entries of the Tessora convertible bond

Purpose of the workpaper

Record the issue proceeds, the principal, the coupon, the rate of a similar liability without a conversion option and the due dates. Discount each flow separately, add the present values to obtain the liability component, then deduct it from the proceeds to obtain the residual equity component. The rate and the amounts are case data: the rate is never presented as imposed by the standard. The entries of the period (interest, coupon, conversion) take up the amounts calculated in the case.

Questions of the file covered by this workpaper

  • Compute the present value of the principal.
  • Compute the present value of the first coupon.
  • Compute the present value of the second coupon.
  • Compute the liability component at issue.
  • Compute the residual equity component.
  • Check that there is neither gain nor loss at issue.
  • Record the issue of the convertible bond.
  • Record the interest charge of 20X6.
  • Record the payment of the coupon of 20X6.
  • Record the conversion at maturity.

Documents in the file

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