Convertible bonds on the accounting treatment and its impact on earnings per share of the net _ to write papers

Papers to write net: Abstract In this paper, Sichuan Atlantic Welding AG, for example, on the characteristics of convertible bonds, the accounting treatment and its impact on earnings per share details.

Keywords: convertible bonds; accounting, earnings per share, diluted earnings per share

Convertible bonds since the 20th century appeared in the sixties and seventies, Europe and the United States market, because of its low cost of capital, can be more convenient access to long-term funding and regulating the cost of equity capital and debt structure, etc., widely used in the global market has become a sophisticated financial services. In recent years, some of China's listed companies have begun to try to use this financing tool for financing, the issuance of convertible corporate bonds as companies must deal with are very concerned about their accounts. This paper on the characteristics of convertible bonds, accounting treatment and its impact on earnings per share are introduced.


First, the convertible bonds of the nature and characteristics of

(A convertible bond with debt, equity dual nature. Convertible bonds is issued according to law distribution company, agreed in a certain period based on the conditions can be converted into shares of corporate bonds. Convertible bonds have been given a stock conversion rights of bonds, the bondholders do not convert the converted stock or stock with the right to choose. issuer may choose to provide that creditors prior favorable opportunity, according to the conditions prescribed by the issuance of its bonds converted into common stock equivalent of the issuing company When investors are not sure of the issuing company development potential and prospects, it can be invested in such bonds to be issued the company a significant operating results, business outlook, the bullish stock market price, you can convert the bonds into shares, to benefit from the company's development.

(B convertible bond rates than non-convertible bonds, interest rates are low because of Convertible Bonds convertible into shares of the favorable conditions, so its distribution rates lower than ordinary bonds, for example, Sichuan Atlantic Welding Materials Co., Ltd. 2009 March issue of convertible bonds in the first year to five years of nominal interest rates were 1%, 1.2%, 1.4%, 1.6%, 1.8%, significantly lower than the five-year Treasury rate was 3.14% level for distribution companies, can raise funds at lower interest rates for investors, is more an investment choice, so even if the convertible bond yields lower than bond yields, but the trade-offs in the investment opportunity to choose , this bond is still welcomed by investors.

(C period before the issuer has the right of redemption. <<Listed company securities issued Administrative Measures>> redemption provisions prospectus may agree provisions for listed companies according to a pre-agreed terms and prices have not yet redeemed the convertible convertible bond. redeemed is the company's stock price in a period of time than the conversion price to achieve a continuous range, the company bought back at a pre-agreed price of corporate bonds are not convertible.

(Four investors have the right to sell back stage before the <<issuance of securities of listed companies management approach>> regulations, the prospectus may agree to sell back provisions for bondholders may be pre-agreed terms and prices will be sold back to the listed company held by bond Back selling refers to the company's stock price over a period less than the conversion price to achieve a continuous range, the convertible bondholders according to a pre-agreed price to sell the bonds held by the issuer.


Second, can the accounting treatment of convertible bonds

(A convertible bond issue when the accounting treatment. Companies issuing convertible bonds, the initial recognition should be included in the liability component and equity components of a spin-off, the liability component is recognized as "Bonds payable - convertible Bonds ", the equity component is recognized as the" capital reserve - other capital surplus. "during the spin-off, it should be first on the liability component of the future cash flows discounted to determine the liability component of the amount initially recognized, then the issue price deducting the total amount of the liability component initially recognized as interest rate after the composition of the initial costs. the cost of convertible bonds issued debt and equity should be the fair value of each share in proportion to the total issued share prices.

For example: Sichuan Atlantic Welding Materials Co., Ltd. September 3, 2009 issue of 26,500 million dollars of convertible bonds, at par value 100 yuan / Zhang parity issue, a total of 265,000 hands, according to convertible bond prospectus of the agreement can be the existence of convertible bonds for five years, that is, since September 3, 2009 to September 2, 2014, the first year to five years of nominal interest rates were 1%, 1.2%, 1.4%, 1.6%, 1.8% , interest on convertible bonds at par value from the September 3, 2009 starting interest, paid annually, the annual interest payment date for the issuance of convertible bonds from the first day of each year of the date of bond holdings may issue the bonds six months after conversion, the initial conversion price of 14.55 yuan / share (par value of $ 1. when the issue is similar on the secondary market with no conversion rights attached to the bond market interest rate 3.14% , the bond issue is completed, net of issuance costs of 1,308.60 million yuan of the money has been deposited in a bank.

The fair value of the liability component = 26,500 × 1.0% / (1 +3.14% +26,500 × 1.2% / (1 +3.14% 2 +26,500 × 1.4% / (1 +3.14% 3 +26,500 × 1.6% / (1 +3.14 % 4 +26,500 × 1.8% / (1 +3.14% 5 +26,500 / (1 +3.14% 5 = 24,381.76 (ten thousand yuan
The fair value of equity component = issue price - the fair value of the liability component = 26,500-24,381.76 = 2,118.24 (million
Share of debt issuance costs of components = 1,308.60 × 24,381.76 / 26,500 = 1,204.00 (ten thousand yuan
Issued equity share of the cost components = 1,308.60 × 2,118.84 / 26,500 = 104.60 (ten thousand yuan
Issuance of convertible debentures of the company's accounting entries are:
By: Bank Deposit 25,191.40 million (issue price of 26,500 yuan - ten thousand yuan transaction costs 1,308.60
Bonds payable - convertible bonds (interest adjustment of 3,322.24 million (reverse squeeze)
Credit: Bonds payable - convertible bonds (face value of 26,500 ten thousand yuan
Capital reserve - other capital surplus 2,013.64 million (the fair value of the equity component of 2,118.24 million - equity component should be assessed the cost of 1.046 million yuan issue
(B accrual of interest using the effective interest method and the amortization of bond discount or premium, according to bond face value is calculated by multiplying the actual coupon rate of interest payable is included in "interest payable" subject, according to the amortized cost of debt multiplied by the effective interest rate draw interest expense included in "finance charges" or "in progress", the difference between the two as a bond premium or discount amortization, included in "bonds payable - convertible bonds (interest adjustment."
Accrual of interest using the effective interest method and the amortization of bond discount or premium, the key is how to determine the real interest rate when there is no transaction costs to issue bonds, the choice of when to issue bonds on the secondary market with a similar bond without the conversion rights with market interest rates , that is, with the debt component of the future cash flows discounted at the same rate, but occurs when the transaction costs for issuers, their own commitment to the real interest rate is higher than the actual market rate, that is, when there transaction costs of real interest rates and debt components of the future cash flows discounted at the interest rate is inconsistent, then the need to use interpolation method includes taxes and fees related to the actual interest rate bonds, such as:
Assume the liability component of the actual interest rate R:
When the interest rate is 3.14% of present value = 24,381.76 (ten thousand
When interest rates when the present value of R = 26,500-3,322.24 = 23,177.76 (ten thousand
When the interest rate of 5% of the current value = 26,500 × 1.0% / (1 +5% +26,500 × 1.2% / (1 +5% 2 +26,500 × 1.4% / (1 +5% 3 +26,500 × 1.6% / ( 1 +5% 4 +26,500 × 1.8% / (1 +5% 5 +26,500 / (1 +5% 5 = 22,347.31 (ten thousand yuan
Interpolation method using the effective interest rate:
(3.14%-R / (3.14% -5% = (24,381.76-23,177.76 / (24,381.76-22,347.31
R = 3.14% - (24,381.76-23,177.76 / (24,381.76-22,347.31 × (3.14% -5%
R = 4.24%
Costs should be recognized in 2009 = 23,177.76 × 4.24% / 12 × 4 = 327.58 (ten thousand yuan
2009 Interest payable = 26,500 × 1% / 12 × 4 = 88.33 (ten thousand yuan
If the calculated use of funds in 2009 their share of engineering interest 248,900 yuan, accounting entries are:
By: Finance costs 3.0269 million yuan (327.58-24.89
Construction in progress 248,900 yuan
Credit: interest payable 883,300 yuan
Bonds payable - convertible bonds (interest adjustment 239.25 (million
2009 bonds at amortized cost = 26,500-3,322.24 +239.25 = 23,417.01 (million)

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(C redeemable convertible bonds accounting treatment when the issue of convertible bonds to the company's stock price conditions for early redemption of convertible bonds, the issuer decided to exercise the right of early redemption of convertible bonds, shall be debited to "deal with bonds - can be convertible bonds (face value "," interest payable ", credited to" bank deposits "," tax payable - personal income tax. "
For example: As of May 13, 2010 closing, the Western Sichuan Atlantic Welding Materials Co., Ltd. redemption of convertible bonds amounted to 596,000 yuan, 17,000 yuan to pay interest, withholding personal income tax 00,800 yuan. Accounting entries are:
By: Bonds payable - convertible bonds (par value) 596,000 yuan
Interest payable 17,800 yuan (1.7 +0.08
Credit: bank deposits 613,000 yuan
Tax payable - Personal income tax 00,800 yuan
(D accounting treatment of debt can be transferred. Bondholder debt conversion exercise of power, the issuer shall be agreed upon conversion price conversion the number of calculations to determine the number of shares at par value included in "capital", the lack of an that part of the cash payment to the face value of convertible bonds and interest, while the carry "interest payable" and "bonds payable - convertible bonds," the difference between the two included in "Capital reserve - share premium." Furthermore, will issue convertible bonds to be formed when the spin-off "capital surplus - Other capital surplus" into the "capital reserve - capital premium."
For example: Sichuan Atlantic Welding Materials Co., Ltd. from March 9, 2010 until May 13, 2010 end, convertible cumulative convertible bondholders through the Shanghai Stock Exchange 18,171,876 shares, after conversion, the remaining can be fractional shares of convertible bonds was RMB 3,204.20 million company in the bond redemption entries done, the "bonds payable - interest adjustment" for the balance of 2,851.51 square knot million, "interest payable" for the credit balance of 1,844,500 yuan . convertible bonds converted into common stock when accounting entries are:
By: Bonds payable - bonds face value of 26,440.4 million (26,500 ten thousand yuan -59.6 ten thousand yuan
Interest payable 1,844,500 yuan
Credit: Bonds payable - interest rate to adjust 2,851.51 ten thousand yuan
Equity 1,817.19 ten thousand yuan
Bank deposits 03,200 yuan
Capital reserve - share premium 21,955.83 ten thousand yuan
At the same time, By: Capital reserve - Other capital surplus 2,013.64 ten thousand yuan
Credit: Capital reserve - share premium of 2,013.64 ten thousand yuan
If the convertible bondholders to pay interest in the company before the exercise of conversion rights, share transfer in the calculation when the number of companies, is at par / conversion price to calculate the number of shares, or by (face value + interest / conversion price to calculate the number of shares , is based on the convertible bond prospectus convention to decide, for example: "Western bonds," the prospectus provides that "interest-bearing debt has been converted and the date of Application for change of registration for the shares of convertible bonds, companies do not further its interest payments. "

Third, the convertible bonds on the impact of earnings per share

As the conversion of convertible bonds with the possibility of a dilution effect on earnings per share, which issued convertible bonds, the company should calculate the diluted earnings per share in the notes to financial statements disclosed in the calculation of diluted earnings per share to Basic earnings per share, based on molecular adjustments have been recognized as an expense for the current interest on the amount of after-tax impact, the denominator of the adjustment for the assumed beginning of the period of convertible bonds (or converted into ordinary shares on issue of shares weighted average.

For example: Sichuan Atlantic Welding Materials Co., Ltd. 3 September 2009 the number of ordinary shares issued and outstanding 12,000 shares in 2009 attributable to ordinary shareholders of the net profit of 7,592.38 million, income tax rate of 15%, as previously above, the company September 3, 2009 issuance of convertible bonds 26,500 million conversion price of 14.55 yuan / share, convertible bonds, interest expense in 2009 resulting in 3,026,900 yuan recorded in the "finance charges" .2009 earnings per share and diluted earnings per share is calculated as follows:
Basic earnings per share = 7,592.38 million / 12,000 shares = 0.63 yuan / share
Assumed conversion of the increased net profit = 3,026,900 yuan × (1-15% = 257.29 万元
Increase in the assumed conversion of the number of ordinary shares = 265 dollars / 14.55 yuan = 18,213,058 shares
Weighted average number of potential shares = 18,213,058 shares × 120 days / 365 days = 5,987,854 shares
Incremental shares = 2,572,900 yuan per share / 5,987,854 shares = 0.43 yuan / share
Incremental earnings per share of less than basic earnings per share, convertible bonds have a dilution effect, so:
Diluted earnings per share = (7,592.38 ten thousand yuan +257.29 million / (120,000,000 +5,987,854 shares = 0.62 yuan / share

Main References:
[1] the PRC Ministry of Finance. Accounting Standards 2006.

[2] People's Republic of Ministry of Finance. Accounting Standards Application Guide 2006.

[3] China Association of Accounting Division prepared .2010 CPA Examination national resource materials - Accounting.

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