What Is a Callable Swap?

Exchangeable Bond (Exchangeable Bond, referred to as EB) is called "bonds that can exchange stocks of other companies", which refers to corporate bonds issued by holders of shares of listed companies by collateralizing their shares to custodian institutions.

Exchangeable bonds

Exchangeable Bond (EB) is called "bonds that can be exchanged for shares of other companies", which refers to the issue of shares of listed companies by mortgages

Exchangeable

Exchangeable bonds and their

(1) Financing: Since the exchangeable bond issuer can be an unlisted company, it is raised by an unlisted group company

An effective means of funding;

(2) Acquisitions and mergers: When encountered in the process of acquisitions and mergers

Exchangeable bonds compared

Exchangeable bonds

First, market value management and

I. Accounting of the issuer

The issuer of the exchangeable bonds is generally the holding parent company of the listed company. Before the bonds are exchanged for stocks, it constitutes the liability of the enterprise. Under the "bonds payable", secondary subjects of "exchangeable bonds" and "par value" and "interest" Adjust "two detail accounts. Due to the existence of premiums, discounts, commissions, commissions and other transaction costs, the actual amount of bonds received by the enterprise will generally differ from the face value of the bond. At this time, the enterprise should debit the "bank deposit", " For cash and other subjects, credit the "Payable Bonds-Exchangeable Corporate Bonds (Par Value)" account at the face value of the bond, and credit or debit "Bonds payable the difference between the actual amount received and the face value". Exchangeable Corporate Bonds (Interest Adjustment).

Exchangeable corporate bonds are generally repayable in installments, and the company should use the actual interest rate method to amortize the "interest adjustment" account on each balance sheet date, and determine the bond interest based on the amortized cost of the bond and the actual interest rate. Expenses, debit the "financial expenses" section day, the unpaid interest payable determined at the coupon rate, credit the "interest payable" account, and debit or credit the "bonds payable-exchangeable corporate bonds (interest Adjustment) "subjects.

The payment of interest on exchangeable bonds is no different from ordinary bonds, debiting "interest payable" subjects, crediting "bank deposits", "inventory cash" and other subjects.

If the holder does not exchange the stock of the underlying company within the conversion period, the debtor will be released immediately after the issuer delivers the assets to repay the principal and interest, debit "bonds payable-exchangeable corporate bonds (par value)", and credit "bank deposits", " Cash in cash "and so on.

When the holder of the exchangeable bond exercises the conversion right, the issuer shall debit "bonds payable-exchangeable corporate bonds" and change the book value of the converted equity from "long-term equity investment", "available-for-sale financial assets", " Credits from subjects such as trading financial assets are transferred out, and the difference between the two is debited or credited to the investment income subject.

Accounting treatment of the holder

As a financial asset, an exchangeable bond should be classified as a transactional financial asset or an available-for-sale financial asset in accordance with financial asset standards, combining its own business characteristics, investment strategies, and risk management requirements. Buyers of exchangeable bonds generally acquire bonds for the purpose of earning bid-ask spreads and opting for equity conversion. Whether or not the conversion mainly depends on objective factors such as future stock price trends and their own financial conditions. It can be seen that the company did not have a clear intention to hold to maturity when initially acquired Therefore, exchangeable bonds are generally not included in the "Hold to maturity investment" account. In addition, the current standards have different accounting treatments for the transaction costs paid by different types of financial assets. The transaction costs of transactional financial assets enter profit or loss. The transaction costs of available-for-sale financial assets and held-to-maturity investments enter the book value. in. However, the author believes that the initial recognition of the value of an enterprise's assets should be measured at the fair value of the price paid when acquiring the asset. The transaction costs are new external costs that can be directly attributed to the acquired assets. If the enterprise does not obtain the relevant assets, it will not The cost incurred, so the transaction cost should be the price paid for acquiring the asset, and its amount should be included in the book value of the asset. In this way, the initial recognition of exchangeable bonds should be based on the sum of fair value measurement and related transaction costs as the initial recorded amount. If the exchangeable bonds obtained by the enterprise contain interest on bonds that have reached the interest payment period but have not yet been received, they shall be separately recognized as receivable items. Assume that the company considers the exchangeable bonds as available-for-sale financial assets (the same below). The accounting treatment is: debit "Available-for-sale financial assets-exchangeable corporate bonds (cost)", "interest receivable", and credit "bank Deposit "and so on.

For exchangeable bonds classified as transactional financial assets or available-for-sale financial assets, the balance sheet date should be measured at fair value, and changes in fair value are included in owner's equity. It is worth mentioning that the current standards require that changes in the fair value of tradable financial assets be included in profit or loss. The author believes that although the fair value of tradable financial assets has changed, the relevant economic benefits (losses) have not yet been realized. It does not conform to the principle of prudence, and the profitability reflected in this case can only be a potential profitability. Moreover, this potential capacity has been reflected by the change in the book value of the assets, and there is no need to convert the fair value Changes are reflected in the income statement. The accounting entry is: debit "available-for-sale financial assets-exchangeable bonds (change in fair value)", and credit "capital reserve-other capital reserve".

The interest obtained during the holding period shall be recognized as investment income, debited to "bank deposits", etc., and credited to "investment income".

For holders, the disposal of exchangeable bonds generally involves two situations:

The first is to hold to maturity. If the company does not choose to convert to equity, it will receive the principal and the last period of interest. At this time, the company should account the difference between the price obtained and the book value of the exchangeable bonds into the investment profit and loss; at the same time, the original is directly included in all The accumulated amount of changes in the fair value of the equity of the investor shall be transferred out and included in the investment profit and loss. The accounting entries are: debit "bank deposits", etc., credit "available financial assets-exchangeable bonds (costs)", "available financial assets-exchangeable bonds (changes in fair value)", " At the same time, debit "capital reserve-other capital reserve" and credit "investment income".

The second is to convert equity. Under the current standards, the equity obtained by the enterprise conversion should be included in the "long-term equity investment", "trading financial assets", "available-for-sale financial assets", and "hold-to-maturity investments" at the fair value (market price) of the equity In other subjects, the difference between the fair value of equity and the book value of exchangeable bonds is included in investment income; at the same time, the cumulative amount of changes in fair value that were directly included in owner's equity is transferred out and included in investment income. The accounting entries are: debit "long-term equity investment", etc., credit "available financial assets-exchangeable bonds (cost)", "available financial assets-exchangeable bonds (change in fair value)", "Investment income"; meanwhile, debit "capital reserve-other capital reserve" and credit "investment income".