Interest charge and coupons of the liability component

Learning objectives

• Calculate the interest expense for the period on the liability component and its closing carrying amount.L3
• Account for the interest expense and the coupon payment on the liability component.L3

Normative references

• IAS 32 §30The classification of the liability and equity components of a convertible instrument is not revised as a result of a change in the likelihood that the conversion option will be exercised, even when exercise appears to have become economically advantageous to some holders; the contractual obligation to make payments remains until it is extinguished through conversion, maturity or some other transaction.
• IAS 32 §31IFRS 9 deals with the measurement of financial assets and financial liabilities. When the initial carrying amount of a compound instrument is allocated, the equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the liability component; embedded derivatives other than the equity component (for example, a call option) are included in the liability component; the sum of the two components on initial recognition is always equal to the fair value of the instrument as a whole, and no gain or loss arises from initially recognising the components separately.

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

3 questions

• Nuage SA issued convertible bonds on 1 January; the liability component was measured at {liability_at_issue}. The effective interest rate of the liability component is {effective_rate} per year (case data) and the coupon paid on 31 December is {coupon_paid}. Calculate the interest charge for the year and the carrying amount of the liability component at 31 December.L3
• A compound instrument has just been issued. Which sentence correctly describes the split of roles between IAS 32 and IFRS 9 in respect of it?L2
• A closing file comments on the subsequent accounting for a convertible bond that has already been split. Which of its conclusions is wrong?L3