8.1 (a) Explain the main reasons for the introduction of FRS 4, Capital instruments. (7 marks) (b) Explain how FRS 4, Capital instruments, deals with the accounting treatment of: (i) convertible debt; and (ii) redeemable preference shares, making reference to any differences with International Accounting Standards. You should relate your comments to the underlying principles in the Statement of Principles, where appropriate. (9 marks) (c) Errol plc borrowed £20 million on 1 January 2000 under an agreement with its bank to pay interest of 7% on 31 December 2000, 10% on 31 December 2001 and a final payment of interest and capital totalling £22 057 000 on 31 December 2002. The company prepares accounts to 31 December. Assume an overall effective annual rate of interest of 9%. Requirement Calculate and disclose the amounts that will appear on the face of the profit and loss accounts and balance sheets for each year affected by the loan. (6 marks) ICAEW, Financial Reporting, December 2000 (22 marks)
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