A Study On The Distinction Between Financial Liabilities And Equity Instruments

The distinction between financial liabilities and equity instruments problem has always been a question of accounting.As the new type of hybrid instruments continuously in recent years,there is a growing controversy over how to divide the two.For the issuing enterprises,the new financial instruments have broadened the financing channels for them and enriched the financing methods.It has greatly aided the development of companies.However the accounting division of such financial instruments has brought unprecedented challenges to issuers.For investors,how to classify financial instruments will affect their investment decisions.For market regulation,the differences and ambiguity between financial liabilities and equity instruments greatly increase the difficulty of regulation.It is also a difficult problem for the organizations that set up the accounting standard to divide the new financial instruments with the development of the market properly.Reasonable division of financial instruments not only relates to issuers of debt,equity and accurate calculation of net income,it will further affect the operation of other important financial indicators,such as asset-liability ratio and financial leverage ratio,so as to influence the financial targets of enterprises.In addition,the capital structure of the issuing enterprise itself is closely related to the distinction of financial liabilities and equity instruments.A financial instrument is included in the debt project or equity project,which involves both the financing decision of the enterprise and the investment choice of investors.Finally,financial liability and equity instruments in a reasonable area are also crucial for reporting users.From what has been discussed above,the research on how to divide financial liabilities and equity instruments reasonably and effectively is very necessary.Some companies of our country capital market sustainable debt issued for improve their capital structure and adjustment of profits,the reality demand,will be under the condition of the policies and regulations and accounting standards allow,using sustainable debt the terms of the new hybrid financial tools such as flexible Settings,to add capital,to reduce the asset-liability ratio,in the hope of enterprise profitability and financial indicators reach ideal level.This issue has led to the development of the current domestic financial instruments accounting standards and the practice of not close,the new financial instruments related norms and other deeper issues.Through the analysis of the relevant clauses of sustainable debt and its application in practice,this paper discusses the problems and causes of financial liability and equity instruments in detail,and gives some counter measures and suggestions.Firstly,this paper analyzes the distinction between liabilities and owners' equity from the perspective of "subjectivity" and "subjective view".And according to the historical vicissitudes of accounting standards,from the definition of financial liabilities and equity instruments,the principle of discrimination and other aspects of the division of financial liabilities and equity instruments are analyzed theoretically.The basic principle of distinguishing the two is summed up.Then the concept of sustainable debt is summarized.The effect of its special provisions on the economic substance is discussed in detail and the overall situation of China's issuance of sustainable debt was calculated.This paper discusses the effect of different contract clauses on the confirmation of perpetual debt accounting in the case of Wuhan metro's "13 Wuhan metro renewable debt" and "16 Wuhan metro MTN001".Take Evergrande Group's issue of "permanent capital tool" as an example to illustrate that the current issue of sustainable debt accounting may be a problem that enterprises "artificially control" the issue of sustainable debt to achieve the purpose of adjusting profits and improving the report.In the end,the current situation of sustainable debt in practical application is further extended to the existing problems such as the impurity of enterprise distribution motivation,the inconsistency between the criterion and practice,the imperfect related standard and so on.This paper discusses the causes of the financial accounting standards,and puts forward some Suggestions on how to perfect the accounting standards.This paper focuses on the normative research,adopts the comparative analysis,and expounds the basic principles of the division of financial liabilities and equity instruments.In addition,the method of case analysis is used to discuss the accounting confirmation in practice.The author hopes to provide a reference for the distribution of financial liabilities and equity instruments,and provide some inspirations for the investment plan of hybrid financial instruments investors.