Example of Conversion Ratio and Conversion Price
ABC Company Ltd books as:
10.000, Sh.20 ordinary share capital
10,000, Shs.10 8% preference share capital
5,000, Shs.100 12% debentures
The above debentures are due for conversion:

Shs.
200,000
100,000
500,000

Required
i) Calculate the conversion price
ii) Calculate the conversion ratio
iii) Calculate new capital structure.
Solution
i) Conversion price = par value of debenture/No. of shares to be obtained.
No. of shares to be obtained = 100:20 = 5:1
Therefore 100/5=20
ii) Conversion ratio = par value of debenture/par value of share = 100/20=5.0
Obtain 5 ordinary shares for every 1 debenture held.
iii) New capital structure
No. of new ordinary shares = 5000 x 5 = 25,000
Shs.
35,000, Shs.20 ordinary shares 700,000
10,000, Shs.10, 8% preference shares 100,000
Total capital 800,000