The following Value Measurement and Corporate Accounting explain below are;
I. Scope of application of fair value measurement and accounting treatment method
Accounting treatment method of fair value measurement In terms of financial instruments, the initial measurement and end-of-period measurement of financial assets held for trading are measured at fair value, and the gains and losses arising from changes in fair value are included in the current profit and loss, that is, the item "gains and losses on changes in fair value", and then recorded in the item of “investment income” when sold; gains and losses arising from changes in the fair value of available-for-sale financial assets, except for impairment losses and exchange differences of monetary financial assets in foreign currencies, are directly recorded in the “investment income” of owners’ equity.
It is included in the “capital reserve” account and is transferred out when the financial asset is derecognized and included in the current investment profit and loss. In terms of investment real estate, under the fair value measurement model, no depreciation or amortization is made for investment real estate, but its book value should be adjusted based on the fair value of the investment real estate on the balance sheet date. The fair value is the same as the original book value. The difference in value is included in the current profit and loss, that is, the "gain and loss from changes in fair value" account.
When converting a building for self-use into investment real estate, the “fair value” should be debited according to the fair value on the conversion date and the difference between the relevant “fixed assets”, “accumulated depreciation” and “fixed assets impairment provision”. Changes in profit and loss" or credit the "capital reserve - another capital reserve" account. When disposing of, in addition to confirming the actually received amount to the "Other Business Income" account and carrying it over to the relevant "Other Business Cost" account, the amount recorded in the "Capital Reserve" account on the conversion date should also be transferred to the "Other Business Cost" account. Other business income" account.
In terms of debt restructuring, for the debtor, to pay off debts with non-cash assets, the difference between the book value of the debt to be restructured and the fair value of the non-cash assets transferred should be recorded in “non-operating income—gains from debt restructuring” subject. If the repossessed assets are inventories, they shall be recognized as “main business income” or “other business income” according to their fair value, and their costs shall be carried forward at the same time; if the repossessed assets are fixed assets and intangible assets, their fair value and book value shall be equal to each other.
The difference shall be recorded in the subject of “Non-operating income – gains from the disposal of non-current assets” or “Non-operating expenses – losses from disposal of non-current assets”; foreclosed assets are available-for-sale financial assets, held-to-maturity investments, In the case of long-term equity investment, the difference between its fair value and book value is recorded in the item "Investment Income". For the creditor, it should be recorded according to the fair value of the transferred assets.
The difference between the book value of the reorganized claims and the fair value of the transferred assets should be recorded in the item of "non-operating expenses-debt restructuring losses". If the book value is less than the fair value of the transferred asset, the “asset impairment loss” item will be written off according to the difference. In the exchange of non-monetary assets, it is satisfied that the exchange is of a commercial nature and that If the fair value of the exchanged assets can be reliably measured, the fair value and the relevant taxes payable should be used as the cost of the exchanged assets, and the difference between the fair value and the book value of the exchanged assets should be included in the current profit and loss.
If the exchanged assets are inventories, they are treated as sales, the income is recognized at fair value, and the corresponding costs are carried forward at the same time; if the exchanged assets are fixed assets or intangible assets, the difference between the fair value of the exchanged assets and its book value is calculated. In the case of "non-operating income" or "non-operating expenses"; if the exchanged assets are long-term equity investments, the difference between the fair value of the exchanged assets and their book value is included in investment gains and losses.
For business combinations not under common control, the acquired assets and liabilities are recognized at fair value according to the purchase method. On the purchase date, if the purchaser's combined cost is greater than the difference between the net fair values of the identifiable assets and liabilities recognized, it is recognized as goodwill.
II. Accounting treatment method of fair value
Analysis of the impact of business accounting statements From the above application scope of fair value measurement and related accounting treatment methods, it can be seen that the adoption of fair value measurement will have a great impact on both the balance sheet and the income statement.
(1) Impact on the balance sheet
- Direct influence. Some assets are measured at fair value, which increases the volatility of shareholders' equity while consolidating the value of assets. For example, the difference formed by the change in the fair value of the available-for-sale financial assets, when the self-use building is converted into an investment real estate, the difference between the fair value on the conversion date and the relevant balance of the fixed assets carried forward is recorded in the "capital reserve" account. Added shareholder equity on the balance sheet.
- Indirect influence. For trading financial assets, investment real estate, and other assets measured at fair value, the gains and losses due to changes in fair value are recorded in the item of “gains and losses from changes in fair value”. Indirectly affects changes in the amount of shareholders' equity on the balance sheet.
(2) Impact on the income statement
1. Influence on the degree of profit realization
The treatment method of recording the difference between the fair value and the original book value of trading financial instruments and investment real estate in the item of “gains and losses from changes in fair value” as part of the total profit will undoubtedly reduce the “realized” of profits. While consolidating the value of assets related to the balance sheet, some unrealized profits are included in the income statement, which increases the uncertainty of corporate profits to a certain extent.
2. Effect on the volatility of profit quantity
Since the gains and losses from changes in fair value are an integral part of the total profit, and the asset value is constantly changing with the changes in the market, the volatility of the number of profit increases, and accordingly, the workload of corporate accounting is also Increased accordingly.
3. The number of different items in the income statement
distribution effects. Different accounting treatments can lead to different results. For example, when an enterprise conducts debt restructuring, for creditors, it should be recorded according to the fair value of the transferred assets. The difference between the book value of the reorganized creditor’s rights and the fair value of the transferred assets should be recorded in “Non-operating expenses—debt restructuring losses.
On the contrary, if the book value of the restructured creditor’s rights is less than the fair value of the transferred assets, the “Asset Impairment Loss” subject will be written off according to the difference, which will make the number of gains of different degrees of realization in the income statement different.
This is because non-operating expenses and asset impairment losses have different degrees of realization in the profit composition. The former belongs to realized profits, while the latter is consistent in nature with the fair value change gains and losses, and belongs to unrealized profits. Therefore, it is necessary to unify the accounting caliber of accounting treatment.
III. Improvement measures
Because of the above analysis of the impact of fair value measurement on corporate accounting statements, the author believes that the accounting statements and related accounting treatment methods should be adjusted in the following aspects. First, under the current accounting standards, when debts are restructured, it is unreasonable for the creditor to write off the difference between the book value of the restructured creditor's rights and the fair value of the transferred assets against the subject of "Asset Impairment Loss".
One is that the transferred assets at this time may not necessarily be impaired, but may also be value-added or value-preserving, which does not meet the meaning of “asset impairment loss”; the second is because the creditor’s book value in dealing with the reorganization creditor’s rights is greater than the transferee’s When the difference between the fair value of the assets is recorded, it is recorded in the realized profit account of “non-operating expenses-debt restructuring losses”, while the difference between the reorganization claims and the fair value of the transferred assets is treated as “asset impairment losses”.
"Subjects, obviously the accounting caliber is different. These two different accounting treatment methods affect the different distribution of the number of profit components of different realization degrees in the income statement and affect the correct understanding of the users of the accounting statement information. The author suggests that the difference between the fair value of the transferred assets and the restructured debts should be recorded in the subject of “non-operating income—debt restructuring income”.
The division of profits is more reasonable. Second, in the income statement under the current accounting standards, the item "loss from asset impairment" and the item "gain or loss from changes in fair value" are listed separately. But in essence, the former is an incomplete reflection of fair value measurement. It only reflects the decrease in asset value caused by the decline in market prices but does not reflect the increase in asset prices caused by the rise in market prices. In terms of connotation, The two are the relationship of inclusion and inclusion, and they are listed separately on the income statement, which is illogical as a side item.
Due to the limitation of objective conditions and the requirement of the principle of prudence, the measurement of fair value is not applied to all asset items, so the current standard lists the two separately. The author believes that under the current conditions, it is not contradictory to merge the items of "gains and losses from changes in fair value measurement" and items of "asset impairment losses". After being incorporated into the item "Gain and Loss from Changes in Fair Value", for assets measured at fair value, the "Gain and Loss from Changes in Fair Value" account has both debit and credit amounts; while for assets that only account for impairment losses, there is only one amount.
This directly reflects the difference between the two. In the long run, it is also an inevitable trend to consolidate the item of "asset impairment loss" into the item of "gain and loss from changes in fair value". Third, since the income statement included the item “gains and losses on changes in fair value” into the total profit, which greatly enhanced the volatility and “unrealized” profits, the department Whether the profit distribution can be realized is determined by the subsequent changes in market prices, so it is obviously unreasonable to make relevant distributions in the current period as part of the "total profit".
This treatment reinforces the pro-cyclicality of fair value measurement. It is proposed to add a column "of which: unrealized earnings per share" after earnings per share in the income statement as part of earnings per share. This will be clearer, help to understand the different realization degrees of profits, and reveal the potential risks brought to investors by different realization degrees of profits. Or separate relevant items in the income statement according to their realization levels to remind users of financial statement information to pay attention to risks.