Sign Convertible Debenture

How to eSign a document: Sign Convertible Debenture

this is a lecture from open tuition to benefit from the lecture you should download the free lecture notes from open tuition com so let's go through and carry on with this monstrous chapter on financial instruments by looking at convertible debentures so we know what a debenture is it's a way of a business being able to raise finance so when we issue debentures we debit the bank and we credit a financial liability and then that financial liability is then treated at amortized cost okay that's what we've looked at so far isn't it however we're now gonna look at a convertible debentures and a convertible debentures is another form of finance so we're raising money but the way in which we incentivize the investors is by allowing them the option to go through there and instead of receiving cash on redemption they can go through there and receive shares within the business instead so it's like a little bit of a reward yeah you can take cash if you want but there might be better terms within the convertible debentures to take the shares at the end so it's beneficial there from the investors perspective because they then get ownership within the business will therefore get dividends forever and ever and ever and they also have the potential for capital growth in those shares at some point in the future from the issuers perspective the benefit there is that you don't have to pay the cash back we're not too worried about the benefits of it were interested in how to account for it because what we've got there the issue that we're going to look at is that from a financial instruments perspective we're going to be debiting Bank so again technically that would be with your net proceeds and then once we've gone through there and abetted Bank this is where the issue comes around okay because we need to go through there and look at the substance legally it debts so in the eyes of the law this convertible debt is a debt instrument until it's either pay back when it's it's gone or it's then issued some shares at some point in the future we want to look at the substance the substance is that there is definitely a liability in nurse because there is an obligation to pay cash but there is also the potential for equity at some point in the future so therefore we're going to account for both of them now we're going to use a process that is known as split equity accounting so by that we are going to credit a financial liability and then we will credit the equity okay the issue that you've got is you know that your debiting your bank is it there at the net proceeds at this level there won't be any issue costs so it will just be debiting back with the proceeds what are we going to credit the...