Required：

(A)Briefly discuss how the fair value of financial instruments is determined，commenting on the relevance of fair value measurements for financial instruments where markets are volatile and illiquid. (4 marks)

(B)Further they would like advice on accounting for the following transactions within the financial statements for the year ended 31 May 2009：

Aron issued one million convertible bonds on 1 June 2006. The bonds had a term of three years and were issued with a total fair value of $100 million which is also the par value. Interest is paid annually in arrears at a rate of 6% per annum and bonds，without the conversion option，attracted an interest rate of 9% per annum on 1 June 2006. The company incurred issue costs of $1 million. If the investor did not convert to shares they would have been redeemed at par. At maturity all of the bonds were converted into 25 million ordinary shares of $1 of Aron. No bonds could be converted before that date. The directors are uncertain how the bonds should have been accounted for up to the date of the conversion on 31 May 2009 and have been told that the impact of the issue costs is to increase the effective interest rate to 9·38%.