Chapter 13 Debt Restructuring
Debt Restructuring
Sense: correction points way to resolve the debt:
bankruptcy; restructuring.
Debt restructuring, occurring in the debtor's
financial difficulties, the creditor in accordance
with its agreement with the debtor or the court's
decision to make concessions on matters.
Conditions: difficult debtors, creditors to make
concessions
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Debtor's financial difficulties (prerequisite)
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The debtor's cash-flow problem, the struggling, or other reasons can
not or do not lead to its ability to repay debt under its original
conditions.
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Creditors to make concessions (necessary conditions)
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Creditors have agreed to a debtor in financial difficulties now or in the
future restructuring of the debt for less than the amount or value of the
book value of debt.
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Creditors to make concessions to the case include: the principal
portion of the debt the creditor or debtor's relief interest on bonds to
reduce interest rates to cope with the debtor.
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Difficult to perform financial difficulties
Financial difficulties or not does not give the normal business process.
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Determine the scope?
Corporate bonds can be converted in four Ways.
1 use asset to repay debt
2 converse debt into capital
3 modify other terms of a debt (extension)
4 combine the above three ways, etc.
Restructuring Date: date of deciding the
accounting treatment
Debt restructuring involving major accounting issues
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The main accounting issues involved:
1.How to pay the debt restructuring on the price or the transferee (noncash assets, equity instruments and new financial liabilities) valuation
(book value or fair value)?
2. Restructuring debt (or debt) with the price of the book value book value
or fair value of the difference between how to deal with? Is to confirm the
profit or loss or directly in equity? If the profit or loss is recognized in all of
its debt restructuring gains and losses, or gains and losses, respectively, as
the debt restructuring and asset disposal gains and losses recognized? How
to measure and report?
The principles of debt
restructuring
The principles -----Use of fair value
Debt restructuring on the price paid or the transferee in accordance
with fair value pricing;
The fair value of the price (the price for the stock of VAT should be
charged with no tax) and restructuring of debt (or debt) the difference
between the book value, gains or losses as the debt restructuring, profit
or loss;
Debtors to pay non-cash assets, debt, should be regarded as disposal
of related assets at fair value in accordance with the related accounting
treatment, and recognition and measurement gains or losses on disposal
of assets;
Debtors to pay when the debt equity instruments, fair value should be
treated as equity instruments issued and the related accounting treatment;
In cash assets, debt, accounting
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Side of the accounting treatment of debt
Debt restructuring should be the book value of the difference between the actual cash
payments, debt restructuring is recognized as profits, as operating income, profit or
loss.
Related to debt restructuring to meet the liabilities are derecognized when the
conditions are derecognized.
Accounting treatment of creditors
Creditors should be re-claim the book balance and the difference between the cash
received, verify losses for the debt restructuring, as operating expenses, profit or loss.
Claims of creditors have been impaired, the difference should be offset against the
impairment, impairment write-downs not part of the loss is recognized as debt
restructuring, as operating income out of the income statement. Remaining balance
after the impairment write-downs, and should be reversed and offset current asset
impairment losses.
To non-cash assets, debt, accounting
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Side of the accounting treatment of debt
Should be the book value of debt restructuring and transfer of non-cash assets of the
difference between the fair value recognized as debt restructuring gains, as operating
income, profit or loss.
Transfer of non-cash assets, fair value should be treated as the disposition of the noncash assets, to confirm the associated gains and losses.
Accounting treatment of creditors
Should accept non-cash assets are recorded at their fair value, the carrying amount of
debt restructuring and acceptance of non-cash assets, the fair value of the difference
between profit and loss.
Claims of creditors have been impaired, the difference should be offset against the
impairment, impairment write-downs not part of the loss is recognized as debt
restructuring, as operating income out of the income statement. Remaining balance
after the impairment write-downs, and should be reversed and offset current asset
impairment losses.
The principles of debt
restructuring - related taxes
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Creditors in debt restructuring-related taxes in place, should be included to
obtain the recorded value of assets.
Occurred in the debt restructuring the debtor-related taxes, transfer of assets to
be included in the profit and loss.
Debtor: the distinction between reorganization and transfer of profits or loss the specific assets
Creditors: Determine the recorded value - fair value losses and restructuring
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Non-cash asset restructuring
Creditor; At fair value
Debtor: repossessed assets, the difference between book value and fair value.
Respectively, of treatment
1, inventories, investment property reflects the income, with the carry-over
costs
2, fixed assets, intangible assets included in operating income
3, financial assets, long-term equity investments: investment income
4, involving mainly tax: VAT, sales tax
Accounting treatment of debt into asset
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Side of the accounting treatment of debt (Recognition of equity - fair value
gains and restructuring)
Conversion of debt into capital, the debtor should give up the claims of
creditors entitled to the aggregate nominal amount of shares is recognized as
equity (or paid-up capital), the total fair value of shares and share capital (or
paid-up capital) is recognized as the difference between public capital plot.
Equity instruments measured at fair value. Occur according to the related tax
and financial instruments, long-term equity investment guidelines.
The book value of debt restructuring and the total fair value of shares the
difference between profit and loss. Creditors of the accounting treatment
(recognition options - fair value losses and restructuring)
Conversion of debt into capital, the creditor should have shares in the fair
value is recognized as the debtor's investment, the carrying amount of debt
restructuring and shares in the fair value of the difference between the cf the
above manner.
Accounting treatment of modifing the terms of other debt
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The debt side of the accounting treatment (recognition of a new debt - fair value
gains and restructuring)
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Modify the terms of other debt, the debtor should modify the terms of other debt
after debt after debt restructuring as the fair value of the recorded value.
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The book value of debt restructuring and reorganization of the recorded value of
debt after the difference between profit and loss.
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The revised terms of debt is involved or the amount due, or the amount due and the
line "or a matter" relating to confirm the conditions of projected liabilities, the
debtor or the amount due should be recognized as a liability. The book value of
debt restructuring, and the recorded value of the restructured debt and the amount
of projected liabilities and the difference between profit and loss.
Other restructuring - with or conditional:
the debtor
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Contingent amount due to meet the conditions for
confirmation of the projected liabilities
Book value of debt and restructuring of the recorded value
and the difference between expected liabilities and profits as
restructuring.
Contingent, is a matter of the future need to place the
emergence of the amount due, and the emergence of future
events is uncertain. Above or the amount due does not occur
in the subsequent accounting period, the company is
expected to be offset against the liabilities have been
identified, while recognizing that operating income.
After the reorganization of debt-servicing problems.
With combinations of the accounting
treatment of debt
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After first considering other ways to consider amending the terms of other debt.
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Side of the accounting treatment of debt
Debt restructuring, cash debt, non-cash assets, debt, debt to capital, to modify
terms of other debt and other forms of combination, the debtor should be followed
in order to pay cash, transfer of non-cash assets at fair value, the creditors have
shares in the fair value is written down the book value of debt restructuring, and
then modify other terms of a debt in accordance with the regulations.
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Accounting treatment of creditors
Debt restructuring debt using cash, non-cash assets, debt, debt to capital, to modify
terms of other debt and other forms of combination, the creditor should be
followed in order to receive cash, receive the fair value of non-cash assets, the
creditors have shares The fair value is written down the carrying amount of debt
restructuring, and then modify the conditions of the processing of other debt.
Disclosure of accounting information of debt
reconstruction
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Creditors should be disclosed in the notes with the following information
related to debt restructuring
1.debt restructuring.
2.total loss recognized in restructuring the debt.
3.debt to shares caused by the increase in investment amount and the total
investment proportion of the total shares of the debtor.
4 .contingent receivable.
5.transferee of the debt restructuring in the fair value of non-cash assets, the
debt into shares in the fair value of other debt and modify the conditions of
claims to determine the fair value of the method and basis.
Guidelines thinking
1 The fair value of credit and debt is the present
value or future value?
2 How to adjust tax ?
3 How to prevent profit regulation?
4 How to profit regulation?