SECTION A

On 1 January 20X8, FinTech Innovators Co issued $10 million 5% convertible bonds at par. The bonds are redeemable at par on 31 December 20Y0 (3 years later) or convertible into equity shares. The prevailing market interest rate for similar bonds without the conversion option is 8%.
Discount factors at 8%: Year 1: 0.926, Year 2: 0.857, Year 3: 0.794.

What amount will be credited to equity on 1 January 20X8?

Under IFRS 9/IAS 32, a convertible bond is a compound financial instrument. The liability component is measured first by discounting the future cash flows (interest of $500k/yr and principal of $10m) at the market rate for a non-convertible bond (8%). PV of interest = $500k * 2.577 = $1,288,500. PV of principal = $10m * 0.794 = $7,940,000. Total liability = $9,228,500. Equity = $10,000,000 - $9,228,500 = $771,500. (Option A text adjusted to $771,500 in logic).