Accounting · Financial Instruments
How should convertible debt be classified in accordance with IAS 32 Financial Instruments: Presentation?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1As a liability in its entirety, until the conversion option is exercised by the holder
- 2As equity in its entirety, on the presumption that all options to convert the debt into equity will be exercised
- 3As separate liability and equity components, by determining the liability element based on the present value of future cash flows✓
- 4As either a liability or equity based entirely on the preference of management
Correct answer
As separate liability and equity components, by determining the liability element based on the present value of future cash flows
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