Compound instruments
You'll learn how to account for compound instruments—financial instruments that combine both liability and equity characteristics, such as convertible bonds and convertible preference shares.
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In this lesson
- 0:00 Understanding compound instruments
- 0:56 Split accounting methodology explained
- 2:10 Initial recognition of liability element
- 3:47 Subsequent measurement of components
- 5:02 Cooper convertible bond worked example
- 6:07 Calculating debt and equity components
- 8:21 Financial statements presentation
- 11:41 Derecognition and discharge of liability
About this lesson
This lesson covers the split accounting method used to separate the liability and equity components at initial recognition, then measure each component subsequently. You'll work through a detailed example calculating the debt element using discounted cash flows at the market rate of interest, with the equity element as the balancing figure. This is essential knowledge for Financial Reporting and Strategic Business Reporting papers, where compound instruments frequently appear in exam questions.
Duration: 12m
Transcript
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