Accounting Treatment Economic Consequences Of Convertible And Redeemable Preferred Stocks

As a new financing tool,convertible and redeemable preferred stock appears in the financial market,which is commonly used in the investment of private equity and venture capital institutions in enterprises.Its dual attributes are reflected in the subscription agreement,which generally stipulates that the preferred shares held by the invested enterprise can be converted into common shares after the listed on schedule.If the listing fails,the preferred shares held by the investor are repurchased at the strike price.For investors,"convertible and redeemable" can better protect their own interests,so it provides a good financing opportunity for start-ups with broad growth prospects but lack of performance proof,and one after another issue convertible and redeemable preferred shares to achieve scale expansion.The contradiction between the convertible and redeemable preferred stock is also highlighted.Reasonable accounting classification is the source of accurate accounting treatment for enterprises.However,in order to adapt to the development needs of the complexity of financial instruments,the current mainstream accounting standards classification standards are also highly complicated,leaving a lot of space for enterprises to interpret independently in practice.The economic impact of the choice of classification and measurement method is quite different,which foreshadows the discussion in this paper.This paper combs the reference and deficiency of the existing research through literature review,and then carries on the case analysis in combination with the accounting practice of enterprises,and gives more scientific and reasonable suggestions.Xiaomi Group listed at a huge loss on the Hong Kong Stock Exchange in2018,which attracted wide attention in the market and accounting circles.In addition,Lei Jun is a leading figure in Internet companies,so the case is well-known to some extent.At the same time,based on the international accounting standards,Xiaomi Group recognizes the impact of convertible redeemable preferred stock as the financial liability recorded into the current profit and loss by the change of fair value.With the increase of business potential energy and market valuation,the counterintuitive phenomenon of financial loss is also typical.Based on this,this paper takes Xiaomi Group as a case,and carries out in-depth analysis and discussion on the impact of accounting treatment of preferred stock under different accounting treatment standards according to the relevant studies of predecessors in recent years,which has important practical reference significance.First of all,this paper is based on the accounting theories related to convertible and redeemable preferred stock,and elaborates the development and characteristics of convertible and redeemable preferred stock under the two systems of international accounting standards and the United States generally accepted accounting principles,and compares the differences of its division and accounting treatment under the two principles.Then,the financial situation and operating status of Xiaomi Group are analyzed by comparing the four financial indicators of Xiaomi Group in terms of debt paying ability,operating ability,profitability and development ability with the data of Meitu and NIO.Then through the capital composition difference,net profit and economic added value of the effect of three aspects of the evaluation and analysis of the existing accounting treatment on the economic impact of enterprises.Through the study of this paper,the following conclusions are reached: Xiaomi Group's accounting treatment violates the accounting principle that substance is more important than form,which distorts the financial report performance,interferes with the judgment of the public investors,and the net profit loss affects its IPO listing opportunity in the mainland.To solve this problem,we need to solve it from a macro level,among which the most effective means is regulatory intervention,such as urging enterprises to pay more attention to the essence of business accounting classification,strengthen the disclosure of information;From the government level reasonable reference other countries preferred stock accounting standards for the establishment of China's standards.