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

 Debtor's financial difficulties (prerequisite)  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.  Creditors to make concessions (necessary conditions)  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.  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.  Difficult to perform financial difficulties Financial difficulties or not does not give the normal business process.

 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  The main accounting issues involved: 1.How to pay the debt restructuring on the price or the transferee (non- cash 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  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  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 non- cash 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  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

 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  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  The debt side of the accounting treatment (recognition of a new debt - fair value gains and restructuring)  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.  The book value of debt restructuring and reorganization of the recorded value of debt after the difference between profit and loss.  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  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  After first considering other ways to consider amending the terms of other debt.  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.  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  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?