Angeles University Foundation |Bachelor of Science in Accountancy DEBT STRUCTURE

The goal is to earn the title– CPA

DEBT RESTRUCTURING USA GAAP
 Debtor is suffering financial difficulties  Gain/Loss on exchange
 Creditor grants to the debtor concession that  Gain/Loss from restructuring
would not otherwise be granted in a normal
business relationship. FV of Land 2,200,000
CA of Land 1,500,000
Concession Gain on exchange 700,000
 Stems from an agreement between the
creditor and the debtor or; Note Payable 2,000,000
 Imposed by law or a court Accrued Interest 400,000
Total Liability 2,400,000
Objective FV of Land 2,200,000
 To make the best of a bad situation or Gain on Debt restructuring 200,000
maximize recovery of investment
Journal Entry
Impact of debt restructuring
Creditor – sustains an accounting loss Note Payable 2,000,000
Debtor - realizes an accounting gain Accrued Interest 400,000
Land 1,500,000
Gain on exchange 700,000
Types of debt restructuring “EMA”
Gain from restructuring 200,000
 Equity Swap
 Modification of terms PFRS 9 shall be followed as this is in conformity
 Asset swap with international accounting standard.

Asset Swap Dacion en pago accounting

 Transfer by the debtor to the creditor of any 
asset
 De-recognition of financial liability or;
 Extinguishment of obligation
 Difference between financial liability and
consideration given shall be recognized as
P/L

Illustration

Note Payable 2,000,000

Accrued Interest Payable 400,000

At year-end, the entity transferred to the creditor land

with carrying amount of 1,500,000 and fair value of
2,200,000

Computation

Note Payable 2,000,000

Accrued Interest Payable 400,000
Total Liability 2,400,000
Less: CA of Land (1,500,000)
Gain/Loss 900,000

Journal Entry:

Note Payable 2,000,000

Accrued interest Payable 400,000
Land 1,500,000
Gain 900,000

VAM | Values - Attitude – Motivation Source: Valix 2019