04
Joint venture and joint venture
Regarding joint ventures and contracts, there are two key points to pay attention to when reading financial reports.
First, the joint venture and joint venture companies are calculated according to the equity method , that is, the parent company enjoys the profit or loss of the subsidiary according to the shareholding ratio, and is included in the profit statement "Investment Income" account, and at the same time modify the book value of the "Long-term Equity Investment" account.
Specific accounting treatment is as follows:
html At the beginning of 3, Company A invested 10 million to hold 40% of Company B's equity, which is an affiliated company. Company B achieved a net profit of 2.5 million by the end of the year. When an investment occurs, 10 million is recorded under the "Long-term Equity Investment" account of the consolidated balance sheet.
html At the end of 3, under the "Investment Income-Including: Investment Income for Associates and Joint Ventures" account in the consolidated income statement, 1 million (250*40%) was recorded, and the investment income was included in the net profit of the year.
B company announced a dividend of 1 million yuan.
The "dividend receivable" account of the consolidated balance sheet was increased by 400,000 yuan, and the book value of the "long-term equity investment" account became 10.6 million (11 million to 400,000).
3 months later, Company A received dividends from Company B. When the dividends of
are received, the "Don't Receivable" account of the consolidated balance sheet decreases by 400,000 yuan, and the "Cash Fund" account increases by 400,000 yuan.
Second, if the joint venture and joint venture companies have been losing money, the book value of the "long-term equity investment" recorded on the balance sheet will be reduced to zero to the upper limit, and the continued losses will no longer affect the balance sheet and income statement of the listed company.
Take GAC Group as an example.
GAC Fic is a joint venture between GAC Group and Chrysler Fiat Automobile Group (each holds 50% of the equity). Due to poor management, it has suffered continuous losses in recent years.
As shown in the following table, in 2020, GAC Group's investment in it had all lost, and the end-of-term balance of the investment was zero.
As of the end of 2020, GAC Fick has been insolvent, but according to the above fixed, the losses it incurs will no longer affect GAC Group's balance sheet and income statement.
However, the GAC Board of Directors has decided in 2019 to continue to inject capital. Although it has not been paid yet, it seems that this bottomless pit will continue to be filled.
05
Minor stock investment (financial assets)
Financial assets include both debt financial assets and equity financial assets. Therefore, small-stock investment is also called "equity financial assets" .
Compared with subsidiaries and joint ventures, equity financial assets are relatively complex.
In learning and understanding, we need to pay attention to distinguishing the differences between the standards for new and old financial instruments; we also need to understand the classification principles of financial assets and the results caused by classification changes.
06
Difference between new and old financial instrument standards
In March 2017, the Ministry of Finance revised and issued "Enterprise Accounting Standard No. 22 - Confirmation and Measurement of Financial Instruments", "Enterprise Accounting Standard No. 23 - Financial Asset Transfer", and "Enterprise Accounting Standard No. 24 - Hedging Accounting Accounting Standard No. 37 - Financial Instruments Presentation". These new standards on financial instruments mainly make new norms for financial assets.
According to the requirements, enterprises listed overseas and listed at home and abroad shall implement the new financial instrument standards on January 1, 2018; domestic listed enterprises shall be implemented from January 1, 2019, and the new and old standards vary greatly the classification and processing rules of financial assets.
When reading financial reports, they may read earlier financial reports, so these background information needs to be paid attention to.
Here, we only discuss equity financial assets.
Equity financial assets are mainly divided into two categories under the original financial instrument standards and are recorded through two accounting accounts. The classification names of the two types of financial assets are the same as the names of accounting accounts, namely: "Transactional Financial Assets" and "Available for Sale Financial Assets" .
is also two major categories under the new financial instrument standards, and records through three accounting subjects.
The names of the classification are: "Financial assets measured at fair value and whose changes are included in the current profit and loss" and "Financial assets measured at fair value and whose changes are included in other comprehensive income" .
In his "Teaching You to Read Financial Reports (New Standards Upgrade Edition)", Lao Tang called them vividly "Bamboozi" and "Zongzi" .
The names of accounting accounts are: "Trading Financial Assets", "Other Non-Current Financial Assets" and "Other Equity Instrument Investment" .
However, when the new standards were first implemented in 2019, enterprises were more confused when actually applying the above accounting accounts. In the 2019 statements, there was a situation where two accounts such as "available for sale financial assets" and "other equity instrument investment" were mixed.
You also need to pay attention to this when reading financial reports.
07
Classification of equity financial assets
If the purpose of the company holding equity is "intention to obtain the difference through sale in the future", the classification in the original financial instrument standards is "Transactional Financial Assets" , which is recorded under the "Transactional Financial Assets" account.
in the new financial instrument standards are "Financial assets measured at fair value and whose changes are included in the current profit and loss" , recorded under the "Transactional Financial Assets" and " Other Non-Current Financial Assets" accounts. The difference between the two accounts is that "other non-current financial assets" mainly records "partial financial assets that expire more than 1 year from the date of the financial statements (or without a fixed term) and are expected to hold more than 1 year".
If the company is not sure whether it is holding equity to collect dividends or earn the difference, the classification in the original financial instrument standards is "Available-for-sale financial assets" , recorded under the "Available-for-sale financial assets" account.
The classification in the new financial instrument standards is "Financial assets measured at fair value and whose changes are included in other comprehensive income" , recorded under the "Other equity instrument investment" account. The "included in current profit and loss" mentioned in the name of
in the asset classification means to include the profit of the current period; and the "other comprehensive income" mentioned in the name of the asset classification contains a very wide content, but generally, the content under the project will not affect the current profit, so you can ignore it.
The above accounting accounts are all accounting accounts of the balance sheet.
In the income statement, the fair value changes of "financial assets measured at fair value and whose changes are included in the current profit and loss" are recorded in the account of "fair value change income" of , and the Hong Kong and US stock companies are recorded in the account of "other net income" of .
Below is a screenshot of Hikvision's consolidated income statement in 2019. The fair value changes of
"Financial assets measured at fair value and whose changes are included in other comprehensive income" are recorded under the "Net after tax of other comprehensive income" account after the net profit of the income statement.
If the company divides the equity held into the category "Financial assets measured at fair value and their changes are included in other comprehensive income", after using the "Other equity instrument investment" account record, the price fluctuations of the equity are included in other comprehensive income and will not affect the company's profits again.
Even if it is sold in the future, it will only transfer the "retained income" recorded in other comprehensive income and will not have any relationship with the income statement.
. Under the original financial instrument standards, when sold in the future, the accumulated fair value changes recorded in other comprehensive income can be transferred to the current profit.
such as Suning.com.
Suning.com holds a shareholding in Alibaba, which is recorded under the "Available-for-sale financial assets" account. In 2018, Suning.com obtained an additional 11 billion net profit by clearing the shares of Alibaba, and Alibaba's equity was recorded by Suning.com under the "Available-for-sale financial assets" account.
If the new financial instrument standards are stipulated in the new financial instrument standards, this part of the equity was originally recorded under the "Available-for-sale Financial Assets" account, and then it will be recorded under the "Other Equity Instrument Investment" account. Even if it is sold in the future, investment returns will not be generated and the company's profits will not be affected.
Therefore, before the implementation of the new financial instrument standards, Suning.com cleared all its shares in Alibaba, and its attempt to adjust its net profit through investment income was fully revealed. Once equity financial assets are classified, they will not be allowed to be reclassified in the future, so as not to take advantage of listed companies by arbitrarily changing the classification.
This can avoid the following situation: in the year when the stock price rises, it is classified as "shangzi" to increase profits, and in the year when the stock price falls, it is classified as "zongzi" to avoid affecting profits.
Based on the above analysis, everyone should basically understand that even if the company holds many equity shares of listed companies or unlisted companies, whether the fluctuations in the stock price will affect the net profit will mainly depend on the classification of the equity held by the listed company.
Such as Tencent Holdings.
At the end of 2020, excluding subsidiaries, it held equity investments with a fair value of approximately 1.49 trillion yuan, and most of them were stocks of listed companies. Therefore, according to general perception, it is believed that Tencent’s net profit will be greatly affected by the fluctuations in the stock price of the company it holds.
However, according to Lao Tang's statistics, among the above-mentioned shares held by Tencent, only the total value of 157.1 billion is divided into the "Shangzi" category, accounting for about 10.5% of the total equity investment. The others are either joint ventures or classified into "Zongzi".
Among these 157.1 billion equity investments, only 23.6 billion are the equity of listed companies, accounting for about 1.6% of all equity investments, and the others are equity of non-listed companies. In other words, the price fluctuations in listed companies held by Tencent have very little impact on Tencent's net profit.
However, according to Tencent's 2020 annual report, the net profit was 159.8 billion, of which 57.1 billion investment income, and about one-third of the net profit comes from investment. Since the fluctuations in the stock price of listed companies have very little impact on net profit, what are the problems with these investment income?
In fact, these investment returns mainly come from the equity of non-listed companies with book value of 133.5 billion yuan (1571-236), classified as "Shangzi". The main reason is that the equity changes such as pre-listing refinancing, IPO and post-listing refinancing of these non-listed companies have brought a large amount of investment returns to Tencent. What kind of increase or decrease changes did these equity investment assets ultimately bring more than 1/3 of the total net profit to Tencent Holdings? In the following sections below
, we will understand and discuss the relevant rules and methods in detail.
This is the focus of this article and the most difficult part of all the content involving equity investment assets.
(To be continued)
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