Chapter 16: Q2ISTQ (page 895)
Which of the following statements is correct?
a) IFRS separates the proceeds of a convertible bond between debt and equity by determining the fair value of the debt component before the equity component.
b) Both IFRS and GAAP assume that when there is a choice of settlement of an option for cash or shares, share settlement is assumed.
c) IFRS separates the proceeds of a convertible bond between debt and equity, based on relative fair values.
d) Both GAAP and IFRS separate the proceeds of convertible bonds between debt and equity.
Short Answer
Correct option: a. IFRS separates the proceeds of a convertible bond between debt and equity by determining the fair value of the debt component before the equity component.