The company enters into basic financial instruments transactions that result in the recognition of financial assets and liabilities like trade and other debtors, creditors, loans from banks and other third parties, loans to related parties and investments in non-puttable ordinary shares.
Convertible debt or similiar compound financial instruments
The company also issues convertible debt that potentially contain both a liability and an equity component.
For convertible debt instruments issued for a year of less than one year, there is no fair value adjustment of the debt component and the instrument is therefore recognised in full (being the total proceeds received) as a liability and the same principal value is transferred to equity on conversion of the loan.
For convertible debt issued for a year greater than one year, the proceeds are allocated accordingly between the liability and equity. In order to determine the apportionment of the allocation, the debt component is determined using the fair value of a similiar liability that does not have a conversion feature or similiar associated equity component. The residual amount is then treated as the equity component. Transaction costs shall be allocated between the debt component and the equity component on the basis of their relative fair values.
For year subsequent to the issue, the liability element is accounted for as a financial instrument in accordance with Section 11 Basic Financial Instruments.