Reading28. Non-Current (Long-Term) Liabilities

@[TOC](Non-Current (Long-Term) Liabilities)

28.1 债券

28.1.1 债券相关术语（Bond Terminology）

1. 债券面值（face value）：the amount of principal that will be paid to the bondholder at maturity.

2. 票面利率（coupon rate）：the interest rate stated in the bond that is used to calculate the coupon payments.

3. 票面利息（coupon payment / coupon）：Coupon is stated in the bond that is used to calculate the coupon payments.
   $$couponpayments=facevalue\ast couponrate$$

4. 有效利率（effective rate of interest）：the interest rate that equates the present value of the future cash flows of the bond and the issue price.

5. 利息费用（interest expense）：$Beginin{g}_{carryingvalue}\ast Effectiverateofinterest$

6. 应付债券（bond payable）：债券的账面价值等于其未来现金流折现后的现值，这里的折现率用的是在债券发行时的市场利率。

7. Zero-coupon bonds：A pure-discount bond, make no periodic interest payments, and pay face value at maturity.

28.1.2 债券的发行和计量（Accounting for Bond Issuance）

• IFRS: Effective interest rate method only.

• U.S.GAAP: Effective interest rate method or straight-line method.
  $$Beginin{g}_{carryingvalue}+interestexpensecoupon=Endin{g}_{carryingvalue}$$

一、平价发行（Bonds Issued at Par）

• When the market rate is equal to the coupon rate, the bond is a par bond.
• On the balance sheet, assets and liabilities increase by the bond proceeds (face value). The book value of the bond liability will not change over the term of the bond.
• On the income statement, interest expense=coupon
• On the cash flow statement
  • The issue proceeds are reported as a cash inflow from financing activities
  • The coupon payments are reported as cash outflows from operating activities (under U.S. GAAP; they may be reported as CFO or CFF outflows under IFRS).
  • At maturity, repayment of the face value is reported as a cash outflow from financing activities.

二、溢价、折价发行（Bonds Issued at a Premium or Discount）

• When the market rate is greater than the coupon rate, the bond is a discount bond (priced below par).
• When the market rate is less than the coupon rate, the bond is a premium bond (priced above par).
• A premium bond is reported on the balance sheet at more than its face value. As the premium is amortized (reduced), the book value of the bond liability will decrease until it reaches the face value of the bond at maturity.
  • Interest expense < coupon payment
• A discount bond is reported on the balance sheet at less than its face value. As the discount is amortized, the book value of the bond liability will increase until it reaches face value at maturity.
  • Interest expense > coupon payment

三、债券发行对于现金流的影响（Cash flow impact of issuing a bond）

• coupon payment is the real cash flow

  	CFF	CFO
  Issuance of debt	Increased by cash received (PV of future cash flows)	No effect
  Periodic interest payments	No effect	Decreased by interest paid (coupon rate* face value)
  Payment at maturity	Decreased by face value	No effect

四、债券发行对利润表的影响（Income statement impact of issuing a bond）

$$interestexpense=marketrateatissue\ast beginningcarryingvalueofbondliability$$

Issued at par	Issued at premium	Issued at a discount
Market rate= coupon rate	Market rate < coupon rate	Market rate > coupon rate
Interest expense= cash paid	Interest expense = cash paid - amortization of premium	Interest expense = cash paid + amortization of discount
Interest expense is constant	Interest expense decrease over time	Interest expense increase over time

五、债券发行对资产负债表的影响（Balance sheet impact of issuing a bond）

Issued at par	Issued at a premium	Issued at a discount
Carried at face value	Carried at face value plus premium.	Carried at face value less discount
	The liability decreases as the premium is amortized to face value	The liability increases as the discount is amortized to face value

六、发行成本（Issuance costs）

• Issuing a bond involves legal and accounting fees, printing costs, sales commissions, and other fees.
• US. GAAP:issuance costs are capitalized as an asset (deferred charge) and allocated to the income statement as an expense over the term of the bond.
• IFRS:the initial bond liability on the balance sheet is reduced by the amount of issuance costs, increasing the bond’s effective interest rate. In effect, issuance costs are treated as unamortized discount.

七、Fair Value Reporting Option

• An increase in the bond’s yield will result in a decrease in the fair value of the bond Liability.
• A decrease in the bond’s yield increases its fair value.
• IFRS and U.S. GAAP give firms the irrevocable option to report debt at fair value.
  • Under this option, gains (decreases in bond liability) and losses (increases in bond liability) that result from changes in bonds’ market yields are reported in the income statement.
• Analysis
  • The market value of a firm’s debt may be more appropriate than its book value.

28.1.3 债券终止（Derecognition of Debt）

• When market interests have fallen, it is cheaper to refinance.
• A gain or loss is recognized by subtracting the redemption price from the book value of the bond liability at the reacquisition date.
• If the redeemed bonds’ issuance costs were capitalized, any remaining unamortized costs must be written off and included in the gain or loss calculation.
• Any gain or loss from redeeming debt is reported in the income statement, usually as a part of continuing operations, and additional information is disclosed separately.
• Analysts often eliminate the gain or loss from the income statement for analysis and forecasting.

28.1.4 债券契约（Debt covenants）

• Affirmative covenants
  • Make timely payments of principal and interest.
  • Maintain certain ratios (such as the current, debt-to-equity, and interest coverage ratios) in accordance with specified levels.
  • Maintain collateral, if any, in working order.
• Negative covenants
  • Increasing dividends or repurchasing shares.
  • Issuing more debt.
  • Engaging in mergers and acquisitions.
• Technical default
  • The bondholders can demand immediate repayment of principal if the firm violates a covenant.

28.2 租赁（lease）-承租人

A contractual arrangement whereby the lessor, the owner of the asset, allows the lessee to use the asset for a specified period of time in return for periodic payments.

28.2.1 租赁的优势（Advantages of Leasing）

• Less costly financing.
• Reduced risk of obsolescence.
• Less restrictive provisions.
• Off-balance-sheet financing.
• Tax reporting advantages.

28.2.2 分类

• Finance lease:a purchase of an asset that is financed with debt.
• Title transfer
  • Title to the leased asset is transferred to the lessee at the end of the lease.
• bargin purchase option
  • The lessee can purchase the leased asset for a price that is significantly lower than the fair value of the asset at some future date.
• 75% life
  • The lease term covers a major portion of the asset’s economic life (75%).
• 90% fair value
  • The present value of the lease payments is substantially equal to the fair value of the leased asset (90%).
  • The leased asset is so specialized that only the lessee can use the asset without significant modifications.(IFRS only)
• An operating lease is essentially a rental arrangement.
  • No asset or liability is reported by the lessee.
  • The periodic lease payments are simply recognized as rental expense in the income statement.

28.2.3 租赁的计量（Accounting for Lessee）

• Operating lease
  • Income statement
    • Rent expense equal to the lease payment is recognized in the lessee’s income statement.
  • Cash flow statement
    • Lease payment is CFO.
• Financing lease
  • Balance sheet
    • At the inception of the lease, the lower of the present value of future minimum lease payments or the fair value of the leased asset is recognized as both an asset and as a liability on the lessee’s balance sheet.
  • Income statement
    • Depreciation and interest expense.
  • Cash flow statement
    • Intrest: CFO. Principal: CFF.
• Under the revised reporting standards under IFRS and US GAAP, a lessee must recognize an asset and a lease liability at inception of each of its leases (with an exception for short-term leases). The lessee reports a “right-of-use” (“ROU”) asset and a lease liability, calculated essentially as the present value of fixed lease payments on its balance sheet
• IFRS
  • IFRS has a single category of leases. every lease that an IFRS-reporting company records as a rightof-use asset and a lease liability at inception will result in a subsequent division of lease payments between depreciation expense and interest expense.
• US GAAP
  • Depreciation expense and interest expense separately only in the case of finance leases
  • For operating leases, the lessee reports a single lease expense(straight-line allocation of the cost of the lease)

28.2.4 Impact of financial statement for capital lease and operating lease

	Finance lease	Operating lease
Assets	Higher	Lower
Liabilities	Higher	Lower
Net income (in the early years)	Lower	Higher
Net income (later years)	Higher	Lower
Total net income	Same	Same
EBIT	Higher	Lower
CFO	Higher	Lower
CFF	Lower	Higher
Total cash flows	Lower	Lower
Current ratio (CA/CL)	Lower	Higher
Working capital (CA-CL)	Lower	Higher
Asset turnover (Revenue/TA)	Lower	Higher
ROA,ROE (in the early years)	Lower	Higher
ROA,ROE (in the later years)	Higher	Lower
Debt/Assets	Higher	Lower
Debt/Equity	Higher	Lower

28.3 租赁-出租人

28.3.1 租赁的计量-出租人（Accounting for Lessor）

• Capital lease
  • Sales-Type Lease
    • The lessor sold the asset for the present value of the lease payments and provided a loan to the buyer in the same amount.
    • Sales= present value of the lease payments, a lease receivable.
    • COGS= the carrying value of the assets.
    • Gross profit is recognized.
    • Usually a manufacturer or dealer.
    • Interest portion of the lease payment is recognized as interest income.
    • In the cash flow statement
    • The interest portion of the lease payment is reported as an inflow from operating activities
    • The principal reduction is reported as an inflow from investing activities
  • Direct Financing Lease
    • The present value of the lease payments = the carrying value of the assets.
    • No gross profit is recognized.
    • Usually not a manufacturer or dealer.
    • Interest portion of the lease payment is recognized as interest income.
    • In the cash flow statement
    • The interest portion of the lease payment is reported as an inflow from operating activities.
    • The principal reduction is reported as an inflow from investing activities.
• Operating lease
  • Recognize the lease payment as rental income.
  • Depreciation.

28.4 养老金计划（Pension Plan）

28.4.1 养老金计划框架（Framework of Pension Plan）

一、养老金固定缴款计划（Defined Contribution Plan，DC Plan）

• DC Plan (a defined contribution pension plan) is a retirement plan whereby the firm contributes a certain sum each period to the employee’s retirement account.
• Contribution: employer and employee
• Risk: taken by employee
• B/S: not recognized on employer’s B/S.

二、养老金固定收益计划（Defined Benefit Plan，DB Plan）

• DB Plan (a defined benefit pension plan) : the firm promises to make periodic payments to the employee after retirement.
• Contribution: employer
• Risk: taken by employer
• B/S: recognized on employer’s B/S.
• Funded statues=pension asset-pension liability
• Funded statues>0, overfunded, a net pension asset
• Funded statues<0, underfunded, a net pension liability.

三、IFRS

• Service costs are recognized in I/S.

  • Current service cost员工多工作一年,养老金增加额的现值
  • Past service cost养老金计划改变且追溯调整时产生PSC.

• Net interest expense/income is recognized in I/S.

  • Interest expense: PBO0*r
  • Interest income: FV0*r

• Remeasurement are recognized in OCI.

  • ​ Actuarial gains and losses
  • Differences between the actual return on plan assets and expected return （Interest income: FV0*r）r(discount rate).

• IFRS reporting

四、U.S.GAAP

• Current service cost

  • Recognized in I/S. 员工多工作一年,养老金现值增加额

• Interest expense

  • PBO0*r is recognized in I/S.

• Expected return

  • FV0*E® is recognized in I/S.

• Amortization

  • Amortization of past service cost养老金计划改变且追溯调整时产生PSC.(PSC直接在OCI中确认，然后按员工后续工作年限摊销)
  • Amortization of actuarial gains and losses
    • Differences between the actual return on plan assets and expected return资产实际收益和预期收益之差
    • Changes in PBO arising from changes in actuarial assumptions.精算假设改变导致PBO的变化值。
    • 摊销部分入I/S,未摊销部分计入OCI。

• US.GAAP reporting

五、Difference between DB plan and DC plan

IFRS Component	IFRS Recognition	US.GAAP Component	US.GAAP Recognition
service cost	I/S	current service cost, past service cost	current ：I/S past：OCI
net interest expense or income	I/S	interest expense accrued on the beginning pension obligation	I/S
remeasurement(actuarial gains and losses and differences of actual return and expected return)	OCI	expected return on plan assets actuarial gains and losses :(actuarial gains and lossesand differences of actual return and expected return)	I/S OCI