Analysis of debt restructuring of the debt claims of both network

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Abstract: In February 2006 the latest promulgation of the < 12 - Debt Restructuring>> debt restructuring will be a new definition, this paper, the different forms of debt restructuring, debt claims on both sides described the impact analysis proposed debt restructuring in the treatment situation of the measures to be taken.

Keywords: debt restructuring debt claims an Introduction, "Accounting Standards for Enterprises No. 12 - Debt Restructuring>> debt restructuring is defined as follows: in the debtor's financial difficulties, the creditor and the debtor in accordance with its agreement or court decision to make concessions on matters.

From the above concept, we can see, to form a debt restructuring, we must satisfy two conditions: First, the debtor can not have cash flow problems have led to conditions of time and according to the original debt; Second, creditors agree to the debtor for less than the value of the book value of debt repayment in the debt restructuring, creditors made concessions, rights and interests in the assets, there is a loss, while the debt side has received the corresponding benefits. This raises a number of companies to benefit through debt restructuring; also means that some Originally insolvent companies, once the debt is part of the exemption, a listed company may gain a great deal, can greatly enhance the listed company's earnings per share level of debt claims on both sides to their common interests, there may would join hands to manipulate profits to turn around for the purpose of debt restructuring process.

Second, the way a debt restructuring. ① to assets in satisfaction of the debt for less than the cash settlement.

At this point, the accounting treatment of corporate debt are as follows:

By: Accounts Payable XX

Credit: Cash or bank deposit XX

XX-operating income

Accounting treatment of corporate debt are as follows:

By: Cash or bank deposit XX

Operating expenses XX

Credit: Accounts receivable XX

This situation is often the smaller amount of debt for debt restructuring. When the cash to pay the debts, the debt will increase the company's cash flow, while also increasing the debt the company's cash flow. This approach generally does not make the debt claims of both current ratio has undergone great changes, because this way the basic debt is the normal way, the only difference is that the cash recovered less. In such cases, if the associated enterprises, the enterprise is easily inflated (or virtual cut) current profits, making the information provided by foreign enterprises authenticity be questioned.

② below the debt non-cash settlement, such as inventory liquidation.
When the inventory for debt restructuring, debt will increase the company's sales revenue. Debt side is for the following accounting entries:

By: Accounts Payable XX

Credit: Main business revenue XX

Taxes payable - VAT (sales item) XX

XX-operating income

The creditors will make the following accounting entries:

By: raw materials or stock commodity XX

Taxes payable - VAT (proceeds) XX

Operating expenses XX

Credit: Accounts receivable XX

This is a very strange phenomenon, because in essence, this process does not generate any sales act, because of debt restructuring and confirmed the main business income, which can not be a true evaluation of enterprise sales. After the debt restructuring , adding to the debt company's sales, results of operations has increased, in essence, is to reduce the backlog of inventory, increase inventory flow, so that net assets increased, reducing the company's asset-liability ratio, increase the company's quick ratio , which results in financial performance on the good side. debt restructuring as a means of financial intermediation can be a good solution to a temporary shortage of funds, and help debtors get out of debt burden, and enhance its operational capacity, improve economic efficiency of enterprises enabling companies to quickly adapt to a healthy development track.

On the contrary, claims for businesses, it is equivalent to the purchase of many goods, increased inventory, improve asset-liability ratio, reducing the company's quick ratio.

(2) if the debt company debt into capital only because of temporary cash flow problems, and can not repay the debt, which itself is a good business development, corporate debt could be converted to debt capital, the shareholders of the company as a debt until the debt company well, they can make a profit so that not only solved the problem of debt recovery, but also bring investment opportunities to the enterprise for such a case, a careful analysis of claims and corporate debt to the company's financial condition and size of the market and its future possible trends, taking into account the prevailing economic environment and the legal environment, otherwise, the debt business after a period of operation, the operating conditions do not improve, not only the original debt can not be recovery, but also dragged down by debt companies, into more serious debt crisis, it is worth the candle.

Side of the accounting treatment of debt:

By: Accounts Payable XX

Credit: XX share capital or paid-up capital

Share capital surplus XX free download

Operating income - debt restructuring gains XX

Accounting treatment of creditors was:

By: Long-term equity investment XX

Operating expenses - debt restructuring losses XX

Credit: Accounts receivable XX

3 Other liabilities to modify these conditions do not modify one or two kinds of conditions, other means of debt restructuring, such as reducing the amount of debt, lower interest rates, delayed payments, etc. Such methods need for enterprises back debt , or that the future is unlikely to recover the debt. pay to reduce the amount of the creditor is a great loss, but in order to take advantage of the debt side as early as possible or not bankruptcies, time to return the debt, which is an inevitable move for debt side is indeed in financial difficulty, by lowering interest rates in order to preserve their principal and interest on the part of the low back, to avoid bad debt in order to preserve capital for delay in repayment, if the debtor is only temporary liquidity problems , is not the business problem, to take such a case, not only back the principal and interest, within a certain period can still be considered. relative to the debt business, whether it is to reduce the repayment of principal, interest, or reduce the delay payments, these are conducive to the debt side, can ease the debt side of the short-term solvency.

4 The combination of the above three methods when one of these three methods can not solve the debt problem, the above three methods can be combined to achieve the desired purpose. Include the following way:

① The part of the assets to repay debt, repayment of debt into capital the same time have the other part of the debt;

② the part of the assets of debt, while changing other terms of a debt repayment of debt;

③ In the modified under the conditions of other debt, with debt repayment of debt into capital;

④ In the modification of other conditions of debt to assets, debt and debt to capital, debt restructuring the way.
This method does not bring all debt settlement, but only partially for the settlement of Debt Restructuring debt can not fundamentally solve the problems between creditors, but played a buffer role of debt the business conditions will not necessarily because implementation of debt restructuring to improve its economic development may not be able to access to good operating condition, there is still the firm's equity debt can not be implemented, therefore, during the debt restructuring, debt creditors have to be cautious and line.

Third, the conclusion

Four kinds of debt restructuring can generate profits for the debt side, and creditors will produce losses for non-related party, the creditor debt restructuring will result in the loss, while the debtors will therefore have a corresponding profit for creditors should try to avoid debt restructuring, in their daily business activities, to prompt attention to claims management, to avoid debt or uncollectible debt restructuring, while for the related party, the debt restructuring may be their "gospel" associated companies range between the buying and selling business enterprises, by way of debt restructuring can increase profits to achieve their goals is very easy, for related party debt restructuring is essentially a manipulation of profit behavior can mainly be attributed to the following four categories:

① debtors non-performing assets transferred to the creditor;

② creditors known to be non-performing assets, also agreed debt restructuring, inflated assets;

③ creditors will have lost the use of debt restructuring, the characteristics of intentional transfer of corporate profits to evade taxes.
④ debtors transferred the backlog of inventory, inflated profits.
China's new corporate accounting standards, the fair value of the debt restructuring based on the consideration, but in the real operation, there is a lot of manipulation profits possible, we have to guard against this situation. So far, there are many debt restructuring is not perfect it and we have to the economic substance of debt restructuring and its consequences for analysis, the economic activities of enterprises in real-time, effective supervision, to reduce the debt claims of corporate debt restructuring to manipulate the use of profits space this regard, enterprises and government departments should take active measures to deal with, take preventive measures. corporate debt restructuring should be to strengthen the link, select the appropriate restructuring approach, the integrated use of a variety of debt restructuring, improving governance capacity , sound corporate governance structure. State Government should strengthen regulation of listed companies, strict control of the debt restructuring; debt restructuring to strengthen the disclosure of information to provide accurate and valuable information for decision makers with useful information.

[1] Ministry of Finance. <> [M]. Economic Science Press, 2006
[2] China Association of Certified Public Accountants <> [M]. China Financial and Economic Publishing House, 2009
[3] Xu Wenjing <> [J], Central University of Finance, 2008 (9)

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