Question

Question: Under IFRS, convertible bonds:

(a) are separated into the bond component and the expense component.

(b) are separated into debt and equity components.

(c) are separated into their components based on relative fair values.

(d) All of the above.

Short answer

Answer

Correct option: b.are separated into debt and equity components.

Step-by-step solution

The explanation for the correct option

Since the convertible bonds have the elements of both liabilities (debt) and equities, it appears to be legit to represent a liability portion and an equity portion independently.

The explanation for the incorrect options

Option a: Bonds have 3 significant parts: a face value also known as a par value, a coupon rate, and a stated maturity date. An expense component implies the absolute costs and pay charges for a yearly period owing to a specific component or classification.

Option c: A relative value is a strategy for deciding a resource merit that considers the worth of comparative assets. This, conversely, with an absolute value, takes a granter at an asset's intrinsic value and doesn't contrast it with different assets.

Option d: The convertible bonds are neither separated into a bond component or an expense component, nor are separated into their components based on relative fair values of the option.