How are convertible bonds initially measured?

Convertible bonds are initially measured at their total value of cash received. This measurement reflects the fair value of the consideration paid by investors to acquire the bonds at the time of issuance.

When a company issues convertible bonds, it typically receives cash from investors in exchange for these debt instruments. The initial measurement captures the total cash inflow, which is a crucial part of the reporting process under Generally Accepted Accounting Principles (GAAP).

Subsequent to the initial measurement, the accounting treatment may vary based on the specific terms and conditions of the bonds, including any conversion options that allow bondholders to convert the bonds into equity. However, the initial measurement is based on the total value received, rather than the market price or par value, ensuring that the financial statements reflect the resources the company has received at the outset.