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Debt Restructuring

The document outlines the accounting treatment for asset and equity swaps under PFRS 9 and US GAAP, detailing the journal entries for liabilities, interest payable, and gains or losses. It also discusses substantial modifications of liabilities, including the criteria for determining substantiality and the corresponding journal entries. Additionally, it explains the treatment for cases with no substantial modification, emphasizing the importance of the existing exchange rates and gain calculations.

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3 views2 pages

Debt Restructuring

The document outlines the accounting treatment for asset and equity swaps under PFRS 9 and US GAAP, detailing the journal entries for liabilities, interest payable, and gains or losses. It also discusses substantial modifications of liabilities, including the criteria for determining substantiality and the corresponding journal entries. Additionally, it explains the treatment for cases with no substantial modification, emphasizing the importance of the existing exchange rates and gain calculations.

Uploaded by

bambyylee
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

ASSET SWAP

*PFRS 9
CA, liab
(CA, asset)
gain (loss)

*US GAAP
FV, asset ​ ​ ​ CA, liab
(CA, asset)​ ​ ​ ​ ​ (FV, asset)
gain (loss) on sale ​ ​ ​ gain on extinguishment

JE:​ LIABILITY
​ INTEREST PAYABLE
​ *A/D
​ ​ ​ ​ ASSET
​ ​ ​ ​ GAIN
​ ​ ​ ​ *DISCOUNT

EQUITY SWAP
CA, liab​ ​ ​ ​ IM, equity
(IM, equity)​ ​ ​ ​ (Par, shares)
gain (loss) ​ ​ ​ ​ Share Premium

*IM, equity Order of Priority: ELC

JE:
*IM=FV​ ​ ​ ​ ​ ​ ​ *IM=CA (NO GAIN)
LIAB​ ​ ​ ​ ​ ​ ​ ​ LIAB
INTEREST​ ​ ​ ​ ​ ​ ​ INTEREST
​ ​ SHARE CAPITAL ​ ​ ​ ​ ​ SHARE CAPITAL
​ ​ SHARE PREMIUM​ ​ ​ ​ SHARE PREMIUM
​ ​ GAIN
SUBSTANTIAL MODIFICATION
-extinguish old liab, recognize new liab
-10% test, ATLEAST 10% of OLD liab:
CA, old liab
(PV, new liab, old ER)
gain (loss)
*(direct costs)
NET gain(loss)
÷ CA, old liab
atleast 10%= Substantial

-GAIN ON EXTINGUISHMENT:
CA, old liab
(PV, new liab, new ER)
gain (loss)

JE: NP-OLD
​ ​ INTEREST PAYABLE
​ ​ ​ ​ NP-NEW
​ ​ ​ ​ *PREMIUM
​ ​ ​ ​ *GAIN

*if w/ direct costs, compute for NEW ER

NO SUBSTANTIAL MODIFICATION
-no extinguishment, no new liab
-gain(loss) <10%
-ignore prevailing ER, old ER=INT. EXP.
PV, new
(FA)
addt'l discount

JE: DISCOUNT
​ ​ NOTES PAYABLE
​ ​ ​ ​ GAIN

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