Conversion at maturity

Learning objectives

• Account for the conversion of the liability component into equity at maturity.L2
• Calculate total equity after conversion from the carrying amount of the liability and the original equity component.L3

Normative references

• IAS 32 §AG32On conversion of a convertible instrument at maturity, the entity derecognises the liability component and recognises it as equity; the original equity component remains as equity (although it may be transferred from one line item within equity to another); there is no gain or loss on conversion at maturity.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

2 questions

• Zola SA issued convertible bonds. At maturity, all the holders exercise their conversion right. At that date, the carrying amount of the liability component is {liability_carrying_amount}; the original equity component is {original_equity_component} (case data). Rule of the standard: on conversion, the carrying amount of the liability is reclassified to equity, with no gain or loss, and the original equity component remains in equity. Record the conversion entry.L2
• Lux SA issued convertible bonds. At the start of the last year, the carrying amount of the liability component is {opening_liability}; the effective interest rate is {effective_rate} and the coupon paid at the end of the year is {coupon_paid}. The original equity component is {original_equity} (case data). At maturity, all the holders convert. Rule of the standard: the liability is reclassified to equity at its carrying amount and the original component stays in equity. Calculate the carrying amount of the liability on conversion, then the total equity attributable to the instrument after conversion.L3