Economics is not only a science that studies different spheres of human activity, but also an integral part of culture.
It is not necessary for everyone to have an economic education, but everyone who considers himself modern and advanced should know and understand the basic concepts and have at least some idea of securities. This article will focus on what a bond is, what types it has, in what form it is issued and realized. The market and accounting of this financial instrument will be considered. The issue of similarities and differences of such types of securities as stocks and bonds will also be raised. Let's start with the concept.
What is a bond and how to use it?
This is a kind of securities that regulate the debt relations of people, organizations and the state.
Answering the question what a bond is, it is worth noting that in this case obligations arise from the legal entity that was involved in their issue. It undertakes to repay at a certain time, that is, to pay the nominal value of the paper to its owner. In addition, a fixed interest is paid to the holder on the bonds.
Bonds can be bought, changed, donated or transferred under such conditions as will be arranged by the holder of this paper. With the help of these securities, you can receive additional income, which is in the interest earned and the discount given on acquisition.
A discount in this situation means the difference between the nominal value and the sale price. In other words, these are debt obligations. The economic essence of bonds is very similar in its meaning to a loan. To make it even easier to understand, we can say that the buyers of these securities are lending their own funds to the company that issued them. The organization pays interest over time, and at the end of its validity period, it fully pays its debt.
With the concept of what a bond is sorted out, let us turn to their types.
Classification of bonds
The securities in question may be state or corporate, depending on the enterprise that issued them. The first, as it becomes clear, is issued by the state, while others are commercial organizations of various types, for example, bank bonds. There are several more classifications.
Classical division into types of bonds:
- Without security. This type of security gives owners the opportunity to receive income and return the invested amount. The unsecured bonds are not available of certain collateral and guarantee charge acts the value of the credit rating of the Issuer and the image of his organization. Secured give the similar rights, but there is a Deposit in the form of property.
- According to the term of existence, bonds can be with a certain period of validity and without it.
- Bonds can be convertible and non-convertible. The former imply that they can be exchanged for other securities, while the latter are not.
- Depending on which bonds in the form of return, there are coupon and discount securities. For the first payment of a certain percentage relative to the initial value, and a second income depends on the difference between nominal value and acquisition cost.
- By type of income – permanent, fixed, floating or sinking income. In this case there are the following types of bonds: for the first type, the person who purchased the securities, knows how much revenue it will receive in the end
Comparative characteristics of stocks and bonds
Both securities are a tool for attracting additional funds to the organization. But still they have certain differences.
- Bonds can be issued not only by joint-stock companies, but also by the state and municipalities.
- Bonds are not paid dividends.
- Bonds guarantee income, it is fixed and does not depend on how profitable the company is.
- If the company goes bankrupt, then, first of all, obligations to those who own bonds are fulfilled. As for stocks, then the claims of creditors are first satisfied.
- Owners of bonds do not have the right to participate in the activities of the enterprise.
- Bond time is limited. Shares are in circulation on the market until the liquidation of the company.
- Bonds in a falling market will have more revenue. In shares, he will, on the contrary, on the "growing".
- Bonds little changed price during the period of validity. They are more dependent on the economic situation and interest rates on deposits. And the value of shares depends on the success of the company.
- Bonds have the highest return with minimal risk. Stocks give you more revenue at higher risk.
If we talk about similarities, there are only two of them: both stocks and bonds are securities and are traded on the stock market.
It is worth mentioning the main government bonds, since in our country the modern bond market is mostly represented by government securities. They can be market and non-market. The most famous of them are short-term government bonds, bonds of federal significance, bonds of government savings loans and bonds of domestic foreign currency loans, they are characterized by a secondary bond market.
Who has the right to issue bonds?
Issue and placement of these securities is allowed to be carried out by limited liability companies and joint-stock companies in accordance with the law.
Form of bonds
They can be documentary (when the right of ownership is established on the basis of a certificate) and uncertificated (when the right of ownership is fixed in a special register or account).
Two main conditions:
- They should be posted releases.
- Provide the same rights in one issue, regardless of the time of paper purchase.
The emission is carried out in several stages:
- First, a decision is made on the placement of bonds.
- Approved this decision.
- Produced state registration of release.
- Placement of bonds.
- State registration report.
The decision on release is approved by the management body. The decision should indicate the following:
- Quantity and cost of papers.
- The form.
- Order and terms of repayment.
- Ways of placement.
- The cost of accommodation.
The state registration is carried out by the Central Bank, as well as the registering authority.
Placement of bonds
Submitted by open or closed subscription. The issuer completes the procedure on time, which was determined at the time of the decision.
Public subscription implies the possibility of receiving bonds by any persons at special auctions. When placing such bonds not only their issue is registered, but also a prospectus.
By closed subscription bonds are placed only for a limited number of persons. It is worth remembering that closed joint-stock companies are allowed to engage in placement only through such a subscription.
Not later than one month after completion of the placement of bonds, the company that issued it submits a report to the Bank of Russia on the results of the issue in order to conduct state registration of the report simultaneously with the registration of the issue.
It is implemented using accounting regulations.
In particular, expenses related to the payment of funds on bonds include:
- interest payable to creditors;
- payment of various consultations and information services related to the issue of the loan and other expenses.
The issuer reflects the debt on the bonds as a short-term liability if it remains less than one year to maturity. If the period is exceeded, it will be considered long-term.
Long-term liabilities are recorded in 52 accounts “Long-term liabilities on bonds”, which is intended precisely to take into account calculations for issued securities, which will need to be extinguished not earlier than after 12 months. The rolled balance is reflected in the third section of the liabilities side of the balance sheet.
Over the 12 months to maturity long-term bonds, it is short-term. The commitments recognised in 521, 522 and 523 and is transferred to the subaccount of account 61 "Current debt on long-term liabilities".
If you do not follow these rules, then the balance will not show a real picture, since long-term liabilities will also take into account those that need to be repaid, for example, within one month from the time of the balance sheet. Thus, the enterprise will be misled by the enterprise, since the subaccount 521 will not correspond with the 31st account, but with the 61st account.
In order to take into account short-term bonds, a separate account in the plan that long-term bonds have is not provided. In this case, it is better to have three such additional subaccounts in account 60 “Short-term loans”. Rolled up balance is reflected in the fourth section of the liabilities side of the balance sheet.