I'm looking for the intuition behind this, especially since the repurchase of shares doesn't show up, and I thought the two were somewhat similar in the way they're treated in accounting ?
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In basic terms BOND: The company borrows money from you, they will repay it STOCK: You own part of the company, they don't owe you money
https://www.investopedia.com/terms/b/bond.asp
https://www.investopedia.com/terms/s/stock.asp
So my guess is this is what happens to income statement in debt repurchases / write downs:
a) If it's a write-down, you add it back on income statements, because it's like a "capital gain" on the investments you've made.
b) If it's a repurchase of debt/bonds: i. If it's bought back at par --> nothing on income statement changes. ii. If it's bought back cheaper than issued (e.g. issued at 100, bought back at 50) you only record the "gain" (i.e. 50) you've made on the sale on the income statement in pretax income.
Can someone confirm that's correct?
a) Not entirely sure what you mean by writedown of debt? The only concept that I think is close is DVA but that's primarily used at banks through a fair value election (i.e. not typical for companies).
b) yes - and the intuition is this: Assets = Liabilities + Equity
If you buy $100 of liabilities for $50 in cash then your equity should increase given the equation above. Accounting rules dictate that this should grow equity through the income statement and therefore you record a gain.
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