CU
Present value of the principal - CU2,000,000 payable at the end of three years    1,544,367
Present value of the interest - CU120,000 payable annually in arrears for three years    303,755
Total liability component    1,848,122
Equity component (by deduction)    151,878
Proceeds of the bond issue    2,000,000
Example 10: Separation of a compound financial instrument with multiple embedded derivative features
IE37. The following example illustrates the application of paragraph 31 to the separation of the liability and equity components of a compound financial instrument with multiple embedded derivative features.
IE38. Assume that the proceeds received on the issue of a callable convertible bond are CU60. The value of a similar bond without a call or equity conversion option is CU57. Based on an option pricing model, it is determined that the value to the entity of the embedded call feature in a similar bond without an equity conversion option is CU2. In this case, the value allocated to the liability component under paragraph 31 is CU55 (CU57 - CU2) and the value allocated to the equity component is CU5 (CU60 - CU55).
Example 11: Repurchase of a convertible instrument

IE39. The following example illustrates how an entity accounts for a repurchase of a convertible instrument. For simplicity, at inception, the face amount of the instrument is assumed to be equal to the aggregate carrying amount of its liability and equity components in the financial statements, ie no original issue premium or discount exists. Also, for simplicity, tax considerations have been omitted from the example.
IE40. On 1 January 1999, Entity A issued a 10 per cent convertible debenture with a face value of CU1,000 maturing on 31 December 2008. The debenture is convertible into ordinary shares of Entity A at a conversion price of CU25 per share. Interest is payable half-yearly in cash. At the date of issue, Entity A could have issued non convertible debt with a ten-year term bearing a coupon interest rate of 11 per cent.

IE41. In the financial statements of Entity A the carrying amount of the debenture was allocated on issue as follows:
     CU
Liability component    
Present value of 20 half-yearly interest payments of CU50, discounted at 11%    597
Present value of CU1,000 due in 10 years, discounted at 11%, compounded half-yearly    343
     940
Equity component      
(difference between CU1,000 total proceeds and CU940 allocated above)    60
Total proceeds     1,000
IE42. On 1 January 2004, the convertible debenture has a fair value of CU1,700.
IE43. Entity A makes a tender offer to the holder of the debenture to repurchase the debenture for CU1,700, which the holder accepts. At the date of repurchase, Entity A could have issued non-convertible debt with a five-year term bearing a coupon interest rate of 8 per cent.

IE44. The repurchase price is allocated as follows:
     Carrying Value     Fair Value    Difference
Liability component:    CU    CU    CU
Present value of 10 remaining half yearly interest payments of CU50, discounted at 11% and 8%, respectively    377    405    
Present value of CU1,000 due in 5 years, discounted at 11% and 8%, compounded half-yearly, respectively    585    676    
     962    1,081    (119)
Equity component     60    619[3]    (559)
Total     1,022     1,700    (678)
 
IE45. Entity A recognises the repurchase of the debenture as follows:
Dr    Liability component    CU962    
Dr    Debt settlement expense
(income statement)    CU119    
Cr    Cash         CU1,081
     To recognise the repurchase of the liability component.
Dr    Equity    CU619    
Cr    Cash         CU619
     To recognise the cash paid for the equity component.
IE46. The equity component remains as equity, but may be transferred from one line item within equity to another.

Example 12: Amendment of the terms of a convertible instrument to induce early conversion
IE47. The following example illustrates how an entity accounts for the additional consideration paid when the terms of a convertible instrument are amended to induce early conversion.
IE48. On 1 January 1999, Entity A issued a 10 per cent convertible debenture with a face value of CU1,000 with the same terms as described in Example 11. On 1 January 2000, to induce the holder to convert the convertible debenture promptly, Entity A reduces the conversion price to CU20 if the debenture is converted before 1 March 2000 (ie within 60 days).
IE49. Assume the market price of Entity A's ordinary shares on the date the terms are amended is CU40 per share. The fair value of the incremental consideration paid by Entity A is calculated as follows:
Number of ordinary shares to be issued to debenture holders under amended conversion terms:
Face amount    CU1,000    
New conversion price    /CU20    per share
Number of ordinary shares to be issued on conversion    50    shares
Number of ordinary shares to be issued to debenture holders under original conversion terms:
Face amount    CU1,000    
Original conversion price    /CU25    per share
Number of ordinary shares issued upon conversion    40    shares
Number of incremental ordinary shares issued upon conversion     10    shares
Value of incremental ordinary shares issued upon conversion
CU40 per share 10 incremental shares    CU400    

IE50. The incremental consideration of CU400 is recognised as a loss in profit or loss.
________________________________________
[1] In these examples, monetary amounts are denominated in 'currency units' (CU).
[2] In this example, the entity has no obligation to deliver a share of its reserves to its members.
[3] This amount represents the difference between the fair value amount allocated to the liability component and the repurchase price of CU1,700.

Table of Concordance
This table shows how the contents of the superseded version of IAS 32 and the current version of IAS 32 correspond. Paragraphs are treated as corresponding if they broadly address the same matter even though the guidance may differ.
The table also shows how the consensus and disclosure paragraphs of the superseded SIC Interpretations 5, 16 and 17 and draft SIC Interpretation D34, and the disclosure requirements formerly included in IAS 39, have been incorporated into the current version of IAS 32.
Except where indicated, all references are to IAS 32.
Superseded paragraph    Current paragraph
Objective    1,2,3
1    4,5
2    None
3    6
4    7
5    11
6    13
7    14
8    AG7
9    AG15
10    AG16
11    AG10
12    AG11
13    AG12
14    AG20
15    AG8
16    None
17    AG29
18    15
19    18
20    17, 19(a)
21    16, 17(part)
22    18(a), 20
23    28
24    BC22
25    29
26    30
27    None
28    31
29    32
30    35
31    36
32    40
33    42
34    43
35    44
36    45
37    46
38    47
39    48
40    49
41    50
42    51, 57
43    52
43A    56
44    53
45    54
46    55
47    60
48    62
49    63
50    64
51    65
52    66
53    None
54    None
55    None
56    67
57    68
58    69
59    70
60    71
61    None
62    72
63    73
64    74
65    75
66    76
67    77
68    78
69    79
70    80
71    81
72    None
73    82
74    83
75    84
76    85
77    86, 90
78    87
79    92, 93
80    IAS 39.AG69 (part)
81    IAS 39.AG71, IAS 39.AG72
82    IAS 39.AG64,
IAS 39.AG74
83    None
84    None
85    91
86    88
87    86,89
88    None
89    None
90    None
91    None
92    None
93    None
94    94(e)
95    96, 97
96    96, 97
A1    AG1
A2    AG2
A3    AG3
A4    AG4
A5    AG5
A6    AG9
A7    AG13
A8    AG14(part)
A9    AG16
A10    AG17
A11    AG18
A12    AG19
A13    AG20
A14    AG21
A15    AG22
A16    AG23
A17    AG24
A18    None
A19    AG6
A20    19, AG25
A21    AG26
A22    AG30
A23    AG31
A24    IE34-IE36
A25    AG39
A26    None
A27    None
SIC-5.5    25
SIC-5.6    25
SIC-16.4    33
SIC-16.5    33
SIC-16.6    34
SIC-16.7    34
SIC-17.5    None
SIC-17.6    31, 35
SIC-17.7    38
SIC-17.8    38
SIC-17.9    39
SIC-D34.6    18
IAS 39.166    None
IAS 39.167    61, 92
IAS 39.168    93
IAS 39.169    56, 58, 59
IAS 39.170    94

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