Convertible Notes

Support Query

How do I account for convertible notes?
How do I transact the conversion from convertible notes to listed shares?

Overview

This guide will show you how to account for the acquisition and conversion of convertible notes.

Please refer to the ATO's article on the tax treatment for convertible notes for more information.

The acquisition and conversion date will determine the tax treatment for the convertible notes. Please see the table here on the ATO website for a summary of their treatments.

Recording the convertible note

When creating the Investment Account in Simple Fund 360 to record the convertible note, you can choose whether to:

• use an existing Investment Type
• create your own Investment Type with an appropriate name (e.g. "Convertible Notes")

This will depend on whether any of the existing Investment Types are closely related to your situation.

Conversion to listed shares

The conversion will be processed by recording a disposal of the Convertible Notes and an acquisition of the Shares.
The CGT date for the acquisition of shares will need to be backdated to the original purchase date of the Convertible Notes.

The journal below shows this:

What to do in Simple Fund 360

Example

A fund has 1,000 convertible notes in XYZ Ltd bought on 11/11/2014 at a cost of $5 each. On expiration of these notes on 11/06/2017, the shares in XYZ Ltd were worth $7 each.

In this example, a new investment account type will be created to record Convertible Notes.

Recording the convertible note

A new security and investment account will be created to record the convertible note.

1. Add the convertible note security
   

   From the Main Toolbar, go to Investments.
   Select Investment security list from the list.

   Click Add Security
   
   Enter an appropriate Security Code and Name
   
   Record the Market Type as Miscellaneous
   
   Then select save:
   
   Search for the new security in the search bar and select it:
   
   Select the security from the list:
   
   Click on the Security Prices tab and then click Add New:
   
   Record the following details in the Add Price screen:
   
   Date: 11/11/2014
   Net Asset Value: $5.00
   
   
   Then click save changes.
   
   
   
2. Add the "Convertible Notes" investment control account
   

   From the Main Toolbar, go to Accounting.
   Select Chart of accounts from the list.

   
   Click Add Account and select Investment Account
   
   
   Click  and ensure that the Account Class reads Control and that the Asset subject to CGT box is unticked:
   
   
   
3. Add the XYZ Ltd Convertible Notes account
   

   From the Main Toolbar, go to Accounting.
   Select Chart of accounts from the list.

   
   Click Add Account and select Investment Account
   
   Click  and enter the following details:
   
   Account Class: Sub Account
   Asset subject to CGT box:  Unticked. 
   Securities: Security created in step 1 
   Investment Type: Control Account created in step 2:
   
   
   
   

4. Record the purchase of the convertible notes
   The journal for the acquisition of the Convertible Notes will vary based on what the fund used to acquire the convertible notes. The general transaction will be as follows:

   Account	Units	DR ($)	CR ($)
   70000/XYZ (The account created in step 3)	1,000	5,000
   Bank/Other	N/A		5,000

Conversion to Listed Shares

Click New Transaction and select Journal

Record the following journal to record the conversion:

Ensure that the CGT Dates recorded for the acquisition of the shares is the original Convertible Notes' purchase date:

More Information

Convertible Notes

Treatment of convertible notes acquired after 10 May 1989, converted to shares