Question 2: How to distinguish between preferred stocks and perpetual bonds as financial liabilities or equity instruments 1. Definition of financial liabilities and equity instruments.
(1) Financial liabilities refer to the liabilities of an enterprise that meet one of the following conditions:
(1) The contractual obligation to deliver cash or other financial assets to other parties; Such as bank loans and bonds payable
(2) Contractual obligations to exchange financial assets or financial liabilities with other parties under potentially unfavorable conditions. For example, a company issues a call option based on its common stock, and the option will be settled in net cash.
(3) For non-derivative instruments contracts that need to be settled by the enterprise's own equity instruments or can be settled by the enterprise's own equity instruments in the future, the enterprise will deliver a variable number of its own equity instruments according to this contract; For example, a company issues a call option based on its own common stock, and the option term will be settled by the net amount of common stock.
(4) Derivatives contracts that need or can be settled by enterprise's own equity instruments in the future, except derivatives contracts in which a fixed amount of self-equity instruments are exchanged for a fixed amount of cash or other financial assets.
(2) Equity instruments refer to contracts that can prove that an enterprise has residual rights and interests in assets after deducting all liabilities. If the following conditions are met at the same time, the issuer shall classify the issued financial instruments as equity instruments:
① The financial instrument does not include the contractual obligation to deliver cash or other financial assets to other parties, or to exchange financial assets or financial liabilities with other parties under potentially unfavorable conditions; For example, issuing stocks.
(2) If the financial instrument needs or can be settled by the enterprise's own equity instruments in the future, if the financial instrument is a non-derivative instrument, it does not include the contractual obligation to deliver a variable number of its own equity instruments for settlement; As far as derivatives are concerned, an enterprise can only settle the financial instrument by exchanging a fixed amount of cash or other financial assets with its own equity instrument. Such as warrants.
Second, the basic principles of distinguishing between financial liabilities and equity instruments
1. Is there a contractual obligation to unconditionally avoid paying cash or other financial assets?
(1) If an enterprise cannot unconditionally avoid paying cash or other financial assets to fulfill a contractual obligation, the contractual obligation conforms to the definition of financial liability. In practice, common contractual obligations include:
① Redemption that cannot be unconditionally avoided, that is, the issuer of a financial instrument cannot unconditionally avoid redeeming the financial instrument.
If the contract promises the issuer to buy back its equity instruments in cash or other financial assets, even if the issuer's repurchase obligation depends on whether the counterparty of the contract exercises the right to sell back, the issuer should recognize the obligation as a financial liability at the initial recognition, and its amount is equal to the present value of the amount paid for the repurchase. (such as present value of forward repurchase price, present value of option exercise price or other resale amount)
If the issuer ultimately does not need to buy back its equity instruments with cash or other financial assets, it shall reclassify the financial liabilities as equity instruments according to the book value when the counterparty's right to sell back expires.
② Compulsory interest payment, that is, the issuer of financial instruments is required to pay interest.
The perpetual debt issued by the enterprise has no fixed repayment period and cannot be redeemed, so it is forced to pay interest at the interest rate of 8% per year. Although the term of the instrument is permanent and irrevocable, it conforms to the definition of financial liability, because the enterprise undertakes the contractual obligation of paying cash permanently in the form of interest.
(2) If an enterprise can unconditionally avoid paying cash or other financial assets, for example, it can decide whether to pay dividends according to the corresponding discussion mechanism (that is, there is no obligation to pay dividends), the issued financial instruments have no maturity date and the holders have no right to sell them back, or the issuer has the right to postpone them indefinitely (that is, there is no obligation to pay the principal), then the settlement terms of the cash or other financial assets do not constitute financial liabilities. If the dividend is decided by the issuer according to the corresponding discussion mechanism, whether the dividend is cumulative dividend or non-cumulative dividend itself will not affect the financial instrument being classified as an equity instrument.
In practice, financial instruments such as preferred stock may issue contract terms linked to dividend payment of common stock. The common connection clauses of such tools are "bonus braking mechanism" and "bonus promotion mechanism". The contract terms of "dividend braking mechanism" require that if an enterprise fails to declare or pay dividends to financial instruments such as preferred stocks, it cannot declare or pay dividends to common stocks. The contract terms of the "dividend promotion mechanism" require that if an enterprise declares or pays dividends to ordinary shares, it also needs to declare or pay dividends to financial instruments such as preferred shares. If financial instruments such as preferred stock are linked to the dividend of common stock, and the issuer can decide to pay the dividend of common stock independently according to the corresponding deliberation mechanism, neither the "dividend braking mechanism" nor the "dividend promotion mechanism" will lead to related financial instruments ... >>
Question 3: Whether the preferred stock with repurchase option held by the issuer is an equity instrument. According to the financial instruments standard, according to the standard requirement that economic substance is more important than legal form, preferred shares are classified as financial liabilities or equity instruments.
Financial liabilities mainly refer to:
1. Contractual obligation to deliver cash or other financial assets to other parties (interest must be paid annually);
2. Contractual obligation to exchange financial assets or financial liabilities with other parties under potentially unfavorable conditions (principal must be repaid in liquidation);
3. For non-derivative instruments contracts that need to be settled by the enterprise's own equity instruments or can be settled by the enterprise's own equity instruments in the future, the enterprise will deliver a variable number of its own equity instruments (common stock must be delivered) according to this contract;
4. Derivatives contracts that need or can be settled by the enterprise's own equity instruments in the future, except for derivatives contracts that exchange a fixed amount of self-equity instruments for a fixed amount of cash or other financial assets (warrants must be sent).
It can be seen that the distribution forms of preferred shares are extremely rich, and as long as they are mandatory, they can be recognized as financial liabilities, which also creates conditions for listed companies to issue preferred shares and get pre-tax deduction.
Equity instruments refer to contracts that can prove that an enterprise has residual rights and interests in assets after deducting all liabilities. That is to say, when the preferred stock is issued, it is clearly stipulated that the company can not distribute cash dividends, send ordinary shares uncertainly, and send warrants uncertainly, and confirm them as equity instruments.
Question 4: (About accounting treatment) Why should we distinguish whether the investee accounts for preferred stock dividends as financial liabilities or equity instruments? Equity method refers to the method that after the investment is measured at the initial investment cost, during the investment holding period, the investment enterprise adjusts its investment book value according to the change of the owner's equity of the invested enterprise and its share in the owner's equity of the invested enterprise.
Only when the investor accounts for the preferred stock dividend as an equity instrument can it be regarded as a change in the owner's equity, and investors can calculate the book value of the investment according to the equity method.
Question 5: Are preferred shares derivatives? When judging equity instruments or liabilities, when judging non-derivative instruments, such as preferred stocks, they are actually perpetual bonds.
Question 6: Is preferred stock a financial liability? Preferred stock is not a financial liability, but an equity investment like common stock.
Equity assets are the right to claim income and the right to vote on the company's business decisions, usually in the form of stocks. Its claim is called residual claim.
Typical equity assets are common stocks and funds, and preferred stocks are equity assets like common stocks.
Hope to adopt, thank you.
Question 7: Whether the railway fund preferred stock is an equity instrument or a debt instrument preferred stock has the following characteristics relative to common stock:
First, the priority of distribution. Preferred shares will have an annualized rate of return and will be distributed every year. Even if ordinary shares are not distributed, preferred stock holders can distribute them. However, unlike creditor's rights, preferred shares will not return the principal of the holder. Under normal circumstances, the holder cannot ask the issuer to buy back preferred shares.
Second, preferred shares have no right to vote on major issues of the company. Major issues of the company are decided by the shareholders' meeting, but preferred shareholders have no right to vote at the shareholders' meeting.
For holders, preferred shares are similar to permanent annuities. However, each company's preferred stock will set different terms according to needs, which needs careful investigation.
For issuers, preferred shares belong to equity, not debt.
Question 8: What are the subjects of other equity instruments and how are they presented? Add "440 1 other equity instruments" to the owner's equity account to account for various financial instruments classified as equity instruments except common stocks issued by enterprises. This course should be detailed accounting according to the types of financial instruments issued. Listed in the owner's equity item of the balance sheet.
Question 9: The investee has issued similar equity instruments, such as accumulated preferred shares, which are classified as equity. Regardless of whether the investee declares the dividend distribution of the preferred stock, the investment of the preferred stock dividend is equivalent to the loan interest, which will be paid every year. If the management of the company decides not to distribute preferred shares, but the money belongs to other shareholders, you can't count it as the company's money.
Question 10: In what form do other equity instruments appear in the report? If other equity instruments issued by enterprises are classified as equity instruments, "other equity instruments" should be added between "paid-in capital" and "capital reserve" in the balance sheet to reflect the book value of financial instruments classified as equity instruments except common stocks issued by enterprises, and "preferred stocks" and "perpetual bonds" should be added under "other equity instruments".
If other equity instruments such as issued preferred shares are classified as debt instruments, two subjects of "preferred shares" and "perpetual bonds" are added under the subject of "bonds payable" to reflect the book values of preferred shares and perpetual bonds classified as financial liabilities issued by enterprises respectively. Current liabilities shall be listed in the relevant items of current liabilities according to the above principles.
(Source: relevant provisions on financial reporting)
Hope to adopt.