An accounting view of the dual nature of convertible bond as a financial instrument

Petko Zahariev ()
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Petko Zahariev: University of Economics Varna, Bulgaria

Economics and computer science, 2024, issue 1, 5-10

Abstract: The article aims to present two different historically developed points of view in the accounting treatment of convertible bonds in the issuer's accounting - as a uniform financial liability (a typical debt instrument) and as a hybrid and non-uniform financial instrument containing two components - a financial liability and an element of equity. In the course of the research, the ever-increasing role of convertible bonds as a financial instrument in corporate practice, both worldwide and in Bulgaria, is emphasized, as well as some main characteristics that distinguish them from the standard debt financial instrument. Тhe study is limited only to the accounting of corporations as debt issuers, as well as to the statutory regulations of only the two main accounting bodies-FASB and IASB. A methodology for evaluating the two components is also presented, as well as some aspects of accounting depending on the decision to exercise or not the right to convert. The study utilizes aim methods such as research and analysis of publications from the scientific community, as well as the relevant accounting regulations developed by the FASB and the IASB. In conclusion, in a historically presented discussion, the author accepts the generally accepted FASB Accounting Standards Codification and International Accounting Standards understanding of the hybrid nature of this specific financial instrument, consisting simultaneously of two different elements requiring separate measurement, reporting, and disclosure. The article has a necessary practical-applied usefulness, considering the increased interest both in the world and in Bulgaria in this specific way of corporate financing.

Date: 2024
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