Evaluation of the Classification of Liabilities or Equity on Convertible Bond Issuance Transactions at PT ABC

Abstract

This research aims to evaluate the implementation of PSAK 50 (2014) in determining the classification of liabilities or equity on convertible bond issuance transactions at PT ABC. PT ABC is a start-up company with a status as a foreign investment company effective since third quarter 2020, which then issued convertible bonds in the fourth quarter 2020 which were entirely absorbed by only one party, XYZ. The convertible bond was issued as a payment instrument for the acquisition of 100% ownership in KLM, an overseas entity. This case study research uses qualitative descriptive analysis based on data analysis techniques, data reduction, data presentation, and conclusion drawing using text-based content analysis. The study demonstrates that it is important to consider a number of qualitative factors to ensure the true substance of the transaction is properly reflected in accordance with PSAK 50 (2014), and that the classification of an instrument as a liability or equity is heavily dependent on the specific facts and circumstances of the transaction. In this case, the results showed that the convertible bond instrument at PT ABC should be classified as equity rather than a liability. This conclusion is obtained by considering the substance of the transaction, including the fact that the convertible bonds have no contractual redemption or repayment obligations and are in substance mandatorily convertible into equity.

Keywords: Convertible Bond; PSAK 50 (2014); Classification; Liabilities; Equity; Substance Over the Form