Needed some help on accounting for convertibles
A company is issuing convertible preference shares to an investor. For eg lets say today the company issues shares worth Rs 100 to an investor. These preference shares are to be converted into such number of equity shares of the company such that the investor will get a return of lets say 20% pa. So if conversion is to happen after five years then value of 100 is ~ Rs 250. If value of equity share at time of conversion is Rs 50 then the preference shares will get converted into five equity shares of the company.
Given the above terms can someone guide how the accounting for the same works...preference shares worth Rs 100 are getting converted into equity shares of Rs 250. Does the difference between Rs 250 and Rs 100 ie Rs 150 should get accounted in the books of the company...if so how does this accounting work and what will be the accounting entries
can someone pl clarify
thanx
rj
CAclubindia
