ANSWERS TO THE QUESTION POSTED IN
1. Calculation of Value of Debt and Equity ( As per AS-31) ( For Hena Limited)
YEAR | OUTFLOW | PVF @ 12% | Fair Value |
1 | 105.00 | 0.8929 | 93.75 |
2 | 105.00 | 0.7972 | 83.71 |
3 | 105.00 | 0.7118 | 74.74 |
4 | 105.00 | 0.6355 | 66.73 |
5 | 105.00 | 0.5674 | 59.58 |
6 | 105.00 | 0.5066 | 53.20 |
7 | 105.00 | 0.4523 | 47.50 |
8 | 105.00 | 0.4039 | 42.41 |
9 | 105.00 | 0.3606 | 37.86 |
10 | 105.00 | 0.3220 | 33.81 |
10 | 1,000.00 | 0.3220 | 321.97 |
Value of Debt | (A) | 915.25 | |
Proceed | (B) | 1,000.00 | |
Value of Equity | (C)=A-B | 84.75 | |
2.
Cash Flow | DF | PV | |
Half-year | Rs. 000 | (5%) | Rs. 000 |
1 – 6 | 90 | 5.076 | 456.84 |
7 – 12 | 45 | 3.787 | 170.41 |
12 | 1,100 | 0.557 | 612.70 |
Value of host (Liability component) | 1,239.95 | ||
Value of embedded derivative (Equity component) | 760.05 | ||
Issue proceeds | 2,000.00 |
Alternative Answer
Cash Flow | DF | PV | |
Half-year | Rs. 000 | (5%) | Rs. 000 |
1 – 6 | 90.00 | 5.08 | 456.84 |
6 | 1,000.00 | 0.75 | 746.22 |
7 – 12 | 45.00 | 3.79 | 170.41 |
12 | 1,100.00 | 0.56 | 612.70 |
Value of host (Liability component) | 1,986.17 | ||
Value of embedded derivative (Equity component) | 13.83 | ||
Issue proceeds | 2,000.00 |
3.Journal Entries
Date | Particulars | L/F | Dr. Amount (Rs.) | Cr. Amount (Rs.) |
10.00% Principle Along With Interest Strip A/c Dr 0.50% Interest Strip on 90% Principle A/c Dr 90% Principle Strip and 9.50% Interest Strip A/c Dr To 10% Loan A/c (Being Loan Split) | 1,000/- 40/- 8,960/- | 10,000/- | ||
Bank A/c Dr To 90% Principle Strip and 9.50% Interest Strip A/c To Provision For Credit Enhancement A/c To Profit on Securitization A/c (Being 90% Principle Strip and 9.50% Interest Strip sold.) | 9,115/- | 8,960/- 65/- 50/- |
Working Note:
a. Calculation of Fair Value of Financial Assets
Particulars | Calculations | Fair Value |
10.00% Principle Along With Interest Strip | 10%x10,100/- | 1,010/- |
0.50% Interest Strip on 90% Principle | 40/- | |
90% Principle Strip and 9.50% Interest Strip | Balancing Figure | 9,050/- |
Total | 10,100/- |
b. Calculation of Book Value of Financial Assets
Particulars | Fair Value | Book Value |
10.00% Principle Along With Interest Strip | 1,010/- | 1,000/- |
0.50% Interest Strip on 90% Principle | 40/- | 40/- |
90% Principle Strip and 9.50% Interest Strip | 9,050/- | 8,960/- |
Total | 10,100/- | 10,000/- |
c. Calculation of Credit Enhancement
Particulars | Amount |
Amount received (Consideration) | 9,115/- |
Fair Value | 9,050/- |
Amount of Credit Enhancement | 65/- |
