Sampras Plc Issued £20 Million of Convertible Notes on 1

question 30

Multiple Choice

Sampras Plc issued £20 million of convertible notes on 1 July 2013.The notes have a life of 6 years and a face value of £20 each.Annual interest of 5% is payable at the end of each year.The notes were issued at their face value and can be converted at any time over their lives.Organisations with a similar risk profile to Sampras Plc have issued debt with similar terms but without the option to convert at the rate of 7%.What are the appropriate accounting entries to record the issue of the convertible notes and the first payment of interest in accordance with guidance provided in IAS 32?

• A) \[\begin{array}{l}
• 1 \text { July } 2013\\
• \begin{array} { | c | l | c | c | }
• \hline \text { Dr } & \text { Cash at bank } & 20000000 & \\
• \hline \mathrm { Cr } & \text { Convertible notes } & & 20000000 \\
• \hline & & & \\
• \hline { \text { June } 2014 } & & \\
• \hline \mathrm { Dr } & \text { Interest expense } & 1000000 & \\
• \hline \mathrm { Cr } & \text { Cash at bank } & & 1000000 \\
• \hline
• \end{array}
• \end{array}\]
• B) \[\begin{array}{l}
• 1 \text { July } 2013\\
• \begin{array} { | c | l | r | r | }
• \hline \mathrm { Dr } & \text { Cash at bank } & 20000000 & \\
• \hline \mathrm { Cr } & \text { Convertible notes liability } & & 18093384 \\
• \hline \mathrm { Cr } & \text { Option to convert notes to equity } & & 1906616 \\
• \hline & & & \\
• \hline 30 \text { June } 2014 & & \\
• \hline \mathrm { Dr } & \text { lnterest expense } & 1266537 & \\
• \hline \mathrm { Cr } & \text { Cash at bank } & & 1000000 \\
• \hline \mathrm { Cr } & \text { Convertible notes liability } & & 266537 \\
• \hline
• \end{array}
• \end{array}\]
• C) \[\begin{array}{l}
• 1 \text { July } 2013\\
• \begin{array} { | c | l | r | r | }
• \hline \mathrm { Dr } & \text { Cash at bank } & 20000000 & \\
• \hline \mathrm { Cr } & \text { Option to convert notes to equity } & & 18093384 \\
• \hline \mathrm { Cr } & \text { Convertible notes liability } & & 1906616 \\
• \hline & & & \\
• \hline 30 \text { June } 2014 & & & \\
• \hline \mathrm { Dr } & \text { lnterest expense } & 1266537 & \\
• \hline \mathrm { Cr } & \text { Cash at bank } & & 1000000 \\
• \hline \mathrm { Cr } & \text { Option to convert notes to equity } & & 266537 \\
• \hline
• \end{array}
• \end{array}\]
• D) \[\begin{array}{l}
• 1 \text { July } 2013\\
• \begin{array} { | c | l | r | r | }
• \hline \text { Dr } & \text { Cash at bank } & 20000000 & \\
• \hline \mathrm { Dr } & \text { Option to convert notes to equity } & 2030277 & \\
• \hline \mathrm { Cr } & \text { Convertible notes liability } & & 22030277 \\
• \hline & & & \\
• \hline 30 \text { June } 2014 & & \\
• \hline \mathrm { Dr } & \text { lnterest expense } & 1542119 & \\
• \hline \mathrm { Cr } & \text { Cash at bank } & & 1000000 \\
• \hline \mathrm { Cr } & \text { Convertible notes liability } & & 542119 \\
• \hline
• \end{array}
• \end{array}\]

---

Definitions:

Taste Buds

Small sensory organs on the tongue and other parts of the mouth that are sensitive to the taste of food and drink.

Papillae

Small, nipple-like projections on the tongue where taste buds are located.

Eardrum

The taut membrane that transmits the vibrations caused by sound waves from the auditory canal to the ossicles in the middle ear.

Neural Activity

The electrical and chemical processes occurring within neurons that enable brain function, including thought, sensation, and movement.