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Debt obligations of an organization reflect the cost estimate of financial obligations to borrowers that must be repaid. The liabilities of the enterprise, depending on the maturity date, are divided into short-term (maturity not more than a year) and long-term liabilities (maturity more than a year) and are reflected in the liabilities of the company's balance sheet.
Objectives of assessing the company's liabilities
The Swiss appraisal company Swiss Appraisal identifies the following objectives for the preparation of the Debt Assessment Report of the organization:- Assessment of the financial condition of the organization, making management decisions
- Assessment of the creditworthiness of an enterprise, taking into account debt obligations
- Accounts payable assessment for litigation in case of unlawful claims from the creditor
- Assessment of short-term and long-term liabilities in case of bankruptcy of an enterprise
- Assessment of the borrower's rights of claim for long-term obligations
- Revaluation of liabilities during inventory taking
Clients for whom we have provided these services
Assessment of the accounts payable of the enterprise
Accounts payable refers to short-term liabilities of the organization and must be repaid within a year. If the maturity has passed, it becomes long-term liabilities. The emergence accounts payable the enterprise is associated with the peculiarities of settlements with counterparties and violation of payment terms.Accounts payable types
The appraisal company Swiss Appraisal uses the following classification when preparing the Accounts Payable Appraisal Report:- debts to contractors and suppliers of the company
- obligations to employees of the organization
- accounts payable to state extra-budgetary funds for compulsory social insurance (including fines and penalties)
- obligations to NPFs to provide employees of the organization
- short-term liabilities to the budget for taxes and fees
- accounts payable of the organization to buyers and customers in the event of an advance payment for the supply of goods and services (including commercial loans)
- short-term and long-term obligations to the founders of the company to pay dividends or the market value of the company's shareholding when leaving the company
- other payables
The need to assess the accounts payable of an enterprise usually arises in the framework of assessing the value of the business as a whole, when a full-scale assessment of the property and liabilities of the enterprise is carried out. In this case, it is very important to correctly determine the turnover of accounts payable, i.e. determine how quickly and on time the company pays off its suppliers and creditors. Assessment of the turnover of accounts payable allows you to obtain reliable information about the solvency of the enterprise, its financial stability, the efficiency of resource use. Accounts payable turnover ratio is calculated as the ratio of the cost of goods produced and goods sold to the average annual value of accounts payable.
But when assessing accounts payable, it is necessary not only to calculate the turnover ratio, but also to determine the trend of its changes in recent years, while simultaneously analyzing the changes in the turnover of accounts receivable. By itself, the decline in turnover does not mean anything. If, when assessing the company's short-term liabilities, a decrease in the turnover of accounts payable is found, then this may indicate both problems in the authorization procedure and payment of bills, and a high-quality organization of the policy of relations with suppliers, which suggests a more favorable payment schedule.
In addition to assessing the entire business, an assessment of the organization's accounts payable may be required in the event of a dispute between the debtor and the creditor. For example, to settle legal claims of a creditor. In this case independent appraisal short-term and long-term liabilities allows the debtor company to refer to the current market value of the liabilities and thus get the opportunity to challenge the unreasonable claims of the creditor for the payment of fines, penalties and penalties. A report on the assessment of accounts payable of an enterprise can be an excellent argument for resolving disputes arising from discrepancies in the loan agreement.
Borrowed funds of the enterprise
The borrowed funds of the organization can be both short-term and long-term debt obligations, depending on their maturity. Borrowed funds include:- loans
- bank, budget and commodity loans
- promissory notes and bonds
Assessment of debt obligations should take into account the timing of the formation and maturity of the debt, the terms of the contract, the presence of penalties and fines at the time of the assessment. The discount rate used is usually taken equal to the average lending rate of commercial banks. In the event that the assessment is made for each lender separately, the discount rate may correspond to the rate of a particular bank. The methods used to measure an organization's liabilities are specific and may vary from case to case. Accounts payable and
The assessment of accounts receivable is understood as complex measures aimed at determining market price debt.
The procedure is carried out taking into account the timing of the debt, the nature of its formation and the risks of non-repayment.
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Assessment based on present value money at the time of carrying out and allows you to get the most accurate result.
Target
Accounts receivable, in general sense, it is an active item of the balance sheet of the organization. The amount owed by counterparties should be included in the part of the funds that the company can spend on improving the technological process, equipment and materials.
This type of asset is in some way similar to promissory notes, IOUs and similar securities. Accounts receivable can be traded on the open market, but only in a certain form.
Not being a commodity in itself, a receivable can be sold only in a situation of assignment of a right of claim on the basis of market valuation actual value.
The assignment of the right of claim is understood as the following situation:
- the original creditor, for whatever reason, wants to sell the debt;
- finds a person who is ready to buy the right to claim;
- on the basis of an assignment agreement, within the framework of an open auction, a transfer of rights is made.
In this case, no consent is required from the debtor. It is for the purpose of selling receivables that an assessment is needed - after all, it will determine at what specific price the debt can be sold.
In addition, a market valuation of a receivable may be required in the following cases:
- for performance analysis economic activity companies;
- when settling claims out of court or when collecting debt from a debtor in a legal proceeding;
- in the event of the debtor's bankruptcy and the sale of his property at a public auction.
Stages of the
In short, the assessment of the company's receivables includes the following stages:
- preparatory activities;
- collection and preparation of the necessary information - internal documents of the company, local and general regulations;
- analysis of economic stability in the company;
- direct calculation of the market price of debt;
- the process of agreeing the results of the assessment with the management of the enterprise;
- preparation of the assessment report.
Preparatory procedures
At the preparatory stage, the appraiser sorts the existing receivables based on the following criteria:
- time of occurrence;
- maturity;
- the amount of debt;
- ongoing activities in the company aimed at pre-trial settlement;
- the ability to pay off debt;
- the presence of unrealistic obligations to collect.
At this stage, the appraiser classifies counterparty debts into categories:
- short-term (repayment is expected within 1 year from the reporting date);
- long-term (repayment is expected after 1 year from the reporting date);
- overdue;
- with expired limitation period.
Important! The smaller the organization, the more accurate the assessment results will be. This is due to the fact that the appraiser, due to the human factor and time constraints, cannot perform a thorough analysis of each counterparty-debtor.
After the distribution of accounts receivable into subgroups, the appraiser proceeds directly to the calculations for the appraisal.
Main activities
As part of the main procedures for assessing accounts receivable, the following criteria are analyzed that have a direct impact on the amount of debt:
- the volume of sales in the company, since an increase in profits necessarily leads to an increase in debts on the part of counterparties;
- the procedure for settlements with counterparties - the more loyal the terms of settlements, the greater the amount of debts;
- the debt collection policy in force in the organization - the more active pre-trial and judicial procedures are carried out, the smaller the amount of accounts receivable will be;
- the level of payment discipline of counterparties.
Appraisers also take into account the circumstances that have a significant impact in determining the market value of the debt:
- whether the obligations are secured by one of the forms of security provided for (surety, pledge, deposit, etc.);
- are there any written claims from the debtor regarding non-conformity of supplies or non-fulfillment of other terms of the contract;
- financial and economic condition of the debtor company.
Methods
The assessment of the market price of debt is carried out on the basis of the application of the methods.
There are three approaches:
- profitable;
- costly;
- comparative sales method.
The main features of the assessment methods:
|
Method |
Key features |
| Profitable | This method is based on calculating the value of an asset by determining the expected return |
| Costly | The main indicator when using this method is the amount of funds invested in the recovery of receivables. The calculation uses a discount factor, which depends on factors such as the maturity of the debt, the presence of delinquencies, the financial condition of the debtor, etc. |
| Comparative | This method is based on a comparison of the values of assets with similar parameters on the market. That is, analogs of the counterparty's debt are taken - with the same maturity and other features. |
The choice of which valuation method to use in a particular situation rests with the appraiser. Usually, the method is used that, in the opinion of the evaluator, will show the most accurate and objective result.
The appraiser must indicate information about the method used in the appraisal report, along with information on regulatory legal acts and reference materials that were applied during the work.
Presentation of results
All information obtained in the course of the preparatory and main assessment activities must be entered into a special document called the assessment report.
The document indicates the exact market value of the receivables at the time of the valuation measures.
This document is not only informational in nature, but also evidentiary - information from it can act as evidence in the event of disputes.
The report is also used in other situations when documentary evidence of the real value of the organization's assets is required.
Important! Market price accounts receivable indicated in the report may differ from the accounting one! This is due to two factors:
- the appraiser takes into account not only the value of the “net” debt, but also various penalties, penalties and fines payable from the counterparty;
- the calculation takes into account not only the current situation in the economic market, but also the inflationary component.
Any company, before evaluating its assets, must analyze all the firms engaged in the relevant work, and choose the one that has a sufficiently large authority and license to operate.
Often there are illiterate appraisers who are not able to properly provide accurate information.
Report
A valuation report is a documentary evidence of a market valuation of a liability. The report serves as an official evidentiary document and can be provided to any authorized body - from the court to federal structures.
Each assessment report must contain the following information:
- about the customer organization;
- on the method used to assess the debt;
- about the investigated obligation in the context of counterparties and the debt itself;
- on the results of the assessment.
The report is compiled in accordance with legal requirements, must be stitched, and pages are numbered.
At the end of the document, the seal of the appraisal company and the signature of the employee entitled to appraisal are affixed.
In bankruptcy proceedings
Accounts receivable are part of the assets of a company that belongs to it, but is in the use of other persons (often in illegal use).
Since accounts receivable are exactly the same property of the organization, as, for example, chairs or tables located in the office of the company, the legal provisions provided for the sale of property are subject to the sale of debt through public auction.
Cost of the
In some appraisal companies, the cost for the service is calculated on an individual basis and depends on the volume of work performed.
The fact is that it is quite problematic to set a price for a service in firm terms - the size of companies is very different, and so are debts.
Large enterprises often have an extensive base of counterparties with whom they constantly interact.
Accordingly, the volume of accounts receivable in such organizations is greater than in small firms. Doing an assessment in a large organization and a small one are two different procedures.
The complexity of the assessment also affects the price. For example, liabilities can be different in the type of occurrence, in size, and in the possibility of repayment. It can take a lot of time to evaluate criteria of different legal nature.
All this is taken into account appraisal companies by setting a “price tag” for your services. Based on the analysis of several structures, we present the average values:
Accounts receivable risk assessment
When evaluating accounts receivable, the appraiser needs to take into account that with long-term deferral of repayment of obligations (which are more than 3 years), accounting services have the right to write off bad debts as expenses of the current period (for example, on account 91).
Information about these write-offs is reflected on the off-balance sheet account 007. The appraiser must check whether there were write-offs to overdue accounts receivable, and, if so, to what extent.
If write-offs were made, the appraiser is obliged to state whether he agrees with the amount of write-offs or not. In case of disagreement, he must make independent adjustments to the amount of accounts receivable, starting from the nominal amount of the debt.
As a rule, after 3 years from the date of occurrence of the debt, its price becomes close to zero, provided that no claim has been filed against the debtor for collection before the expiration of this time.
If risk factors have been accounted for in the amount of the receivable, subsequent adjustments that reflect the time factor (deferred payment) should be made by discounting the expected debt at a risk-free rate.
If risk factors are not reflected in the amount of the receivable, subsequent adjustments that reflect both time and risk should be made by discounting at a rate that takes into account the risks of non-receivables.
The concept of "Accounts receivable"
Accounts receivable is a debt of buyers, customers, borrowers, accountable persons, etc., which the creditor company plans to receive within a certain period.
Accounts receivable arise as a result of contractual relations when the moment of transfer of ownership of goods (works, services) and their payment do not coincide in time.
Accounts receivable are accounted for in the balance sheet at their actual realizable value, based on the amount of cash to be received upon repayment, and includes the following calculations:
with buyers and customers / for promissory notes receivable / with subsidiaries and dependent companies / with participants (founders) for contributions to the authorized capital / for advances issued / with other debtors.
In this case, the nominal value of accounts receivable, accounted for in the balance sheet, is the upper limit of value.
The real market value is often lower than the nominal value, which is associated with the following factors:
the longer the period of repayment of receivables, the less income from cash attributable to debtors, since the money invested in assets should be profitable;
cash that are to be returned to the enterprise are depreciated under the influence of inflation.
Certificate of recognition of receivables as non-cash
Explanation of the line "Accounts receivable" as of December 31, 2016
Debtor name
Amount of debt, rub.
Debt origin date
The reason for the debt (operating, investment, financial)
Debt characteristics (hopeless, overdue, current)
Enterprise A
operating room
overdue
Enterprise B
operating room
Enterprise B
operating room
hopeless
Total:
445 000 000,00
The assessment of the market value of the Company's accounts receivable is carried out on the basis of an analysis of its structure and the duration of repayment.
The essence of the methodology for assessing receivables comes down to identifying uncollectible debtors and reducing the book value by this amount, as well as bringing to the present value of future payments on receivables.
According to the data provided by the owner of the asset (certificate of recognition of non-cash receivables), as of the valuation date, bad debts were identified in the amount of 24,000,000 rubles.
According to paragraph 2 of Art. 266 of the Tax Code of the Russian Federation Bad debts (debts that are not real for collection) are debts to an organization:
for which the established limitation period has expired;
for which, in accordance with civil law, the obligation is terminated due to the impossibility of its performance;
on the basis of an act government body;
on the basis of the act on the liquidation of the organization.
According to Art. 195 of the Civil Code of the Russian Federation, the limitation period is the period during which a claim can be brought against the debtor due to the fact that he did not fulfill his obligations under the contract (for example, did not pay for the purchased products). General term the limitation period is three years (Article 196 of the Civil Code of the Russian Federation).
Thus, the bad debt is 24 million rubles. The market value of bad accounts receivable is assumed to be 0.
Overdue operating indebtedness with an increased risk of investment in this type of asset is as of the valuation date 400,0,000 rubles.
To obtain the real value of receivables, it is necessary to make an adjustment taking into account the date of repayment of the debt and the liquidity of the debt, according to the formula:
PV = C / (1 + R) n, where
PV is the current value;
R is the discount rate;
n is the turnover period (term to maturity).
The discount rate for current operating receivables is the weighted average interest rates on loans to non-financial organizations in rubles prevailing at the valuation date.
The average turnover of accounts receivable is, according to the analysis of business activity indicators, 391 days. This turnover period corresponds to the weighted average interest rate on loans to non-financial organizations in rubles as of December 2016 in the amount of 12.86%. (Source: Statistics of the Central Bank of the Russian Federation. Interest rates and the structure of loans and deposits by maturity, www.cbr.ru).
The discount rate for arrears was calculated on a cumulative basis. This method is based on a certain classification of risk factors and assessments of each of them. The risk-free rate is taken as the basis for calculations. It is assumed that each factor increases the given rate by a certain amount, and the total premium is obtained by adding the "contributions" of the individual factors. The classification of factors and the size of their contributions "is shown in the table below.
