a company has an authorized capital of 1000 common shares of $10 par value and 7500 common shares are outstanding during the year the company issued 1000 common shares of $10 par value at $15 per shares .A journal entery is recourded to debit the cash account by 15000 .show the credit side of the journal entry?
Answers
5 Accounting correctly for the convertible loan note in accordance with FRS 25 Financial Instruments: Disclosure and Presentation
and FRS 26 Financial Instruments: Recognition and Measurement would mean that virtually all the financial assistant’s
observations are incorrect. The convertible loan note is a compound financial instrument containing a (largely) debt component
and an equity component – the value of
the option to receive equity shares. These components must be calculated using the
residual equity method and appropriately classified (as debt and equity) on the balance sheet. As some of the proceeds of the
instrument will be equity, the gearing will not be quite as high as if a non-convertible loan was issued, but gearing will be increased.
However, if the loan note is converted to equity in March 2010, gearing will be reduced. The interest rate that would be applicable
to a non-convertible loan (8%) is representative of the true finance cost and should be applied to the carrying amount of the debt
to calculate the finance cost to be charged to the profit and loss account thus giving a much higher charge than the assistant
believes.
Accounting treatment: financial statements year ended 31 March 2008
Profit and loss account:
Finance costs (see working) €693,920
Balance sheet:
Creditors: amount falling due after more than one year