1. The proportion of equity held by the creditor is less than 20% of the debtor
Example 1] Company A receivables a loan of 100 million yuan from Company B, and Company A has made a provision for bad debts of 5 million yuan. Company B is a listed company, and the debt restructuring agreement reached an agreement, and Company B issued **10 million shares to Company A, with a par value of 1 yuan per share and a market price of 8$9. After the additional issuance, Company A's shareholding ratio in Company B reached 15%, which did not achieve control, joint control and significant influence. Company A paid a registration fee of 20,000 yuan for the registration of the equity, and Company B paid a commission of 1.5 million yuan for the issuance of **, both of which were paid by bank deposits. The fair value of the waiver of the claims of Company A was RMB 87 million, and the owner's equity of Company B was RMB 180 million.
Analysis: Through the debt restructuring agreement, Company B repaid the debts of Company A by way of private placement, and Company A obtained 10 million shares of Company B's **, with a shareholding ratio of 15%, without forming control, joint control and significant influence on Company B. As a result, the Debt Restructuring standard is no longer applied to this economic transaction, but to the Recognition and Measurement of Financial Instruments standard. Creditor Company A treats the exchanged assets as financial assets with changes in fair value and the changes are recorded in profit or loss for the current period, i.e., "trading financial assets", and the fair value of the assets is 89 million yuan. Company A pays an equity registration fee of 20,000 yuan as a transaction fee, which is credited to the "investment income" account. The difference between the fair value of the asset and the carrying amount of accounts receivable is recorded in the "investment income" account [8900-(10000-500)=-600]. If the debtor converts the debt into equity instruments for processing, the debtor shall measure the equity instruments at the fair value of the equity instruments and implement the Debt Restructuring Guidelines when the debtor initially recognizes the equity instruments. The debtor shall record the difference between the carrying amount of 100 million yuan of accounts payable and the fair value of equity instruments of 89 million yuan in the account of "investment income", and the relevant taxes and fees paid by the debtor due to the issuance of equity instruments shall be offset by capital reserve, surplus reserve and undistributed profits in turn, and the accounting treatment is as follows (unit: 10,000 yuan):
Accounting treatment of creditor company A:
Borrow: Tradable financial assets - Company B 8900
Investment income – transaction fees2
Debt restructuring loss 600
Bad debt provision 500
Credit: Accounts receivable 10000
Accounting treatment of bank deposit 2 debtor B company:
Debit: Accounts payable 10,000
Credit: share capital 1000
Capital reserve - 7900 share capital premium
Investment income 1100
Borrow: Capital Reserve - Equity Premium 150
Credit: Bank deposit 150
If a debt restructuring involves the transfer of financial assets (e.g. the use of financial assets to settle debts), the debtor will no longer implement the Debt Restructuring Guidelines, but will implement the Financial Instruments Presentation Guidelines.
2. The proportion of shares held by the creditor in exchange for equity accounts for 20%-50% of the debtor's equity
Example 2] Following the above example, "Company A's shareholding ratio of Company A to Company B reaches 15% after the additional issuance" is revised to "Company A's shareholding ratio of Company B to Company B reaches 30% after the additional issuance".
Analysis: Through the debt restructuring agreement, Company B repaid the debts of Company A by way of private placement, and Company A obtained 10 million shares of Company B's **, with a shareholding ratio of 30%, which formed a joint control and significant influence on Company B. Therefore, this business implements the Debt Restructuring guidelines. The recorded value of the long-term equity investment exchanged by the creditor is based on the fair value of the waived claim of 87 million yuan plus the transaction fee of 20,000 yuan. The difference of 8 million yuan between the recorded amount of long-term equity investment of 87.02 million yuan and the book of accounts receivable of 95 million yuan (10000-500=9500) is recorded as "investment income". The debtor's accounting treatment meets the accounting treatment requirements for converting debts into equity instruments, and the accounting treatment is the same as in Example 1.
Accounting treatment of creditor company A (unit: 10,000 yuan):
Borrow: Long-term equity investment 8702
Investment income 800
Bad debt provision 500
Credit: Accounts receivable 10000
Bank deposits2 3. The proportion of shares held by creditors in exchange for equity exceeds 50% of the debtor (not under the same control).
Example 3] Following the above example, "Company A's shareholding ratio of Company A to Company B reaches 30% after the additional issuance" is revised to "Company A's shareholding ratio of Company B to Company B reaches 55% after the additional issuance". Company A and Company B are not companies controlled by the same parties.
Analysis: Through the debt restructuring agreement, Company B repaid the debts of Company A by way of private placement, and Company A obtained 10 million shares of Company B's **, although the shareholding ratio reached 55%, and it formed control over Company B, but because it was not controlled by the same parties, it was a business combination that was not under the same control, therefore, this business does not implement the "Business Combination" standard, and still implements the "Debt Restructuring" standard. The accounting treatment is the same as in Example 2.
4. The proportion of shares held by the creditor in exchange for equity exceeds 50% of the debtor (under the same control).
Example 4] Following the above example, "Company A's shareholding ratio of Company A to Company B reaches 30% after the additional issuance" is revised to "Company A's shareholding ratio to Company B reaches 55% after the additional issuance". Company A and Company B are controlled by the same parties.
Analysis: Through the debt restructuring agreement, Company B repaid the debts of Company A by way of private placement, and Company A obtained 10 million shares of Company B's **, and because the shareholding ratio reached 55%, it formed control over Company B, and was controlled by the same parties, forming a business combination under the same control. Therefore, this business is not subject to the Debt Restructuring Guidelines, and creditors are subject to the Business Combination Guidelines. The recorded amount of long-term equity investment exchanged by creditor A is 99 million yuan (18,000 0.).55) On the basis, the equity registration fee of 20,000 yuan is recorded as "management expenses", and the difference between the book value of accounts receivable of 95 million yuan (10,000-500) is 8 million yuan, which is recorded in "capital reserve - equity premium". The debtor's accounting treatment meets the conditions for debt-to-equity swap, and the accounting treatment is the same as in Example 1.
Accounting treatment of creditor company A (unit: 10,000 yuan):
Borrow: Long-term equity investment 8700
Management expense 2: provision for bad debts 500
Capital reserve - 800 share capital premium
Credit: Accounts receivable 10000
Bank deposit 2 If Company A is originally a shareholder of Company B, and Company A carries out debt restructuring as a shareholder, it shall be accounted for using the principle of equity exchange, which is the same as the accounting principle for debt restructuring of the above-mentioned business combination under the same control. (Optional).
*: New accounting.
Author: Ren Bangqi, Ye Tong, Qin Xiangyong.