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In this video, the tutorial explains how to account for convertible debt under IFRS, highlighting the differences from U.S. GAAP. It emphasizes the need to separate the two components: the debt and the conversion feature. The debt represents a promise to pay a specified amount after a set period, while the conversion feature provides the option to convert into common or preferred shares. IFRS requires the conversion feature to be treated as equity. To achieve this separation, the residual method is used, which involves determining the fair value of the convertible debt at issuance. This process clearly delineates the components for accurate financial reporting.