CERTYNEX IFRS ACADEMY

A colleague describes the steps of the initial split of a convertible bond. Which of the colleague's sentences is wrong?

One first measures the liability component at the fair value of a similar liability that would not include a conversion option, that is, a loan of the same term and ranking.

One first measures the equity component at the fair value of the conversion option, then deduces the liability component by difference from the proceeds.

The equity component is the residual amount, obtained by deducting the fair value of the liability from the fair value of the instrument as a whole.

Once the split is made at inception, it is not revised later, even when the value of the conversion option changes.