Financial instruments - part 5

In this lesson

1. 0:00 Introduction to IAS 32 and compound instruments
2. 2:04 How to classify convertible loans using IAS 32
3. 3:51 Worked example: convertible loan classification
4. 6:00 Calculating liability and equity components
5. 8:35 Recording the initial double entry
6. 9:20 Remeasuring liabilities at amortised cost
7. 11:17 Recording finance costs and cash payments

About this lesson

Convertible loans are compound instruments that contain both liability and equity elements, and the challenge lies in splitting the initial proceeds between the two. You'll discover why IAS 32 requires you to assume no conversion when classifying: this means discounting all potential cash payments (interest and principal) at the market rate of interest to determine the liability portion, with equity as the balancing figure. The video walks through a detailed worked example of a $5 million convertible loan, showing exactly how to calculate the split, record the initial double entry, and then remeasure the liability at amortised cost in subsequent periods. By mastering this technique, you'll be able to handle compound instruments confidently in your exams and understand how both sides of the transaction are recorded in financial statements.

Duration: 12m