14 CUK students received four awards at the 3rd University Accounting Case Contest hosted by the Korean Accounting Association (KAA), allowing the university to receive the most number of awards among the universities in the country.

Among a total of 55 participating teams, four teams were from CUK, and all four teams won an award. In particular, “The Airport of Accountment” team (Joo Min-kyung, Park Jae-hee, Shin Na-ra, Choi Min-hyuk) received high scores and was awarded the Korea Institute of Certified Public Accountant Award for showcasing a topic challenging for university students. The team’s thesis was entitled “Focus on Jeju Air: Research on the Accounting of New Capital Securities.”

Let us take a look at the study with Joo Min-kyung (Accounting, ‘21), the team leader who led the “The Airport of Accountment” team.

Hello, my name is Joo Min-kyung, the leader of the team that received the Korea Institute of Certified Public Accountant Award in this year’s contest. We conducted a study on the accounting of new capital securities. Our purpose was to provide the stakeholders with accurate and integrated information by offering a clear judgment yardstick.

We chose this topic because of what happened with Heungkuk Life Insurance. The controversy surrounding the new capital securities surfaced back when Heungkuk Life Insurance's bond default incident broke out. We were able to check in the process that it had the characteristics of a loan, considering the forcible nature of the early payback and the adjustment of the step-up period. So, we wanted to analyze Jeju Air, which issued a host of new capital securities during the COVID period, and its accounting practices related to capital and liabilities.

Here is what we have studied. The five aspects of analysis were used to analyze the impact of processing the new capital securities as liabilities.

First, “Interest and step-up effect analysis.” We conducted an analysis of whether new capital securities can work as capital. Our analysis of A, B, and C yielded a drastic interest hike after 2025. Therefore, we expected that the repayment will be made in 2025.

Second, “Profit before corporate tax deduction.” We wanted to look into the change in profit through this analysis. The study showed that the profit (before the deduction of corporate tax) decreases twice on average when it’s considered a liability, and from the perspective of the stakeholders, they didn't have access to such information without the financial statement analysis.

Third, “Interest Coverage Ratio.” We were able to make a prediction on the ability to pay interest and finance stability through the ICR. If handled as liabilities, the ICR saw a five-time decrease on average. But whether it’s regarded as a liability or capital, the value was close to a 1.5-times ratio, so we confirmed that the ability to pay interest was assured. It was actually predicted to solve the situation faster when it was seen as a liability.

Fourth, “Capital impairment analysis.” What we wanted through the capital and liability compare and contrast analysis was to take a glance at whether the capital impairment was happening, which we confirmed didn't happen both for the capital and liabilities. However, we found out that it was advantageous for the companies to see it as capital and stakeholders to see it as a liability.

Lastly, “FCF analysis.” Through this, we identified the stock of cash distributable to the shareholders and creditors and analyzed the ability to pay back. We found out that the payment is possible before 2025 (between 2023 and 2025) as the bonds are more prioritized than the shareholders.

Eventually, we came to the conclusion that it is right to recognize it as liabilities. By doing so, it can provide transparent financial information and ensure faster payment and zero financial difficulty since paying back can be done. Not only that, the interest and step-up analysis rendered that it couldn’t even act as perpetuals.

However, we are not saying that all new capital securities must be recognized as liabilities. We are saying that there needs to be a standard by which these are regarded (be it capital or liabilities) considering the issuing conditions.

We faced a lot of challenges and concerns in this contest. But we were able to win and receive this award, all thanks to our professors and their heartfelt guidance. We promise you that we will always strive harder to make CUK’s accounting major shine!

△(From left) “The Airport of Accountment” Team: Shin Na-ra, Joo Min-kyung, Choi Min-hyuk, and Park Jae-hee