NATURE AND PURPOSE OF DEBT RESTRUCTURING

TYPES OF DEBT RESTRUCTURING

ACCOUNTING FOR AN ASSET SWAP, EQUITY SWAP AND MODIFICATION OF
TERMS OF THE OLD LIABILITY
INTERMEDIATE ACCOUNTING PART 2
 DEBT RESTRUCTURING
A situation where the creditor, for economic or legal reasons
related to the debtor’s financial difficulties, grants to the debtor
concession that would not otherwise be granted in a normal
business relationship.

TYPES AND MEASUREMENT OF BONDS

BOND PREMIUM AND DISCOUNT
METHODS OF AMORTIZING PREMIUM AND DISCOUNT
FAIR VALUE OPTION
EFFECTIVE INTEREST METHOD
ACCOUNTING FOR COMPOUND FINANCIAL INSTRUMENTS

INTERMEDIATE ACCOUNTING PART 2

 TYPES:
Asset swap
Equity swap
Modification of terms

TYPES AND MEASUREMENT OF BONDS

BOND PREMIUM AND DISCOUNT
METHODS OF AMORTIZING PREMIUM AND DISCOUNT
FAIR VALUE OPTION
EFFECTIVE INTEREST METHOD
ACCOUNTING FOR COMPOUND FINANCIAL INSTRUMENTS

INTERMEDIATE ACCOUNTING PART 2

 ASSET SWAP - PFRS 9
the transfer by the debtor to the creditor of any asset, such as real
estate, inventory, receivables and investment, in full payment of an
obligation.

TYPES AND MEASUREMENT OF BONDS

BOND PREMIUM AND DISCOUNT
METHODS OF AMORTIZING PREMIUM AND DISCOUNT
FAIR VALUE OPTION
EFFECTIVE INTEREST METHOD
ACCOUNTING FOR COMPOUND FINANCIAL INSTRUMENTS

INTERMEDIATE ACCOUNTING PART 2

 ASSET SWAP -USA GAAP
asset swap is recorded as if two transactions have taken place, the
sale of the asset and the extinguishment of the liability.
1st gain/loss: Gain or loss on exchange (FV -CA of the asset)
2nd gain/loss: Gain or loss from restructuring (CA of the liability - FV
of the asset)

TYPES AND MEASUREMENT OF BONDS

BOND PREMIUM AND DISCOUNT
METHODS OF AMORTIZING PREMIUM AND DISCOUNT
FAIR VALUE OPTION
EFFECTIVE INTEREST METHOD
ACCOUNTING FOR COMPOUND FINANCIAL INSTRUMENTS

INTERMEDIATE ACCOUNTING PART 2

 DACION EN PAGO ACCOUNTING
arises when a mortgaged property is offered by the debtor
in full settlement of the debt

TYPES AND MEASUREMENT OF BONDS

BOND PREMIUM AND DISCOUNT
METHODS OF AMORTIZING PREMIUM AND DISCOUNT
FAIR VALUE OPTION
EFFECTIVE INTEREST METHOD
ACCOUNTING FOR COMPOUND FINANCIAL INSTRUMENTS

INTERMEDIATE ACCOUNTING PART 2

 EQUITY SWAP - IFRIC 19
initially, an entity shall measure the equity instruments at
the fair value of the equity instruments issued, unless the
fair value cannot be measured reliably.
if the fair value of the equity instruments issued cannot be
reliably measured, the equity instruments issued to
extinguish a financial liability shall be measured at the
following amounts in the order of priority”
a. FV of the equity instruments issued
b. FV of liability extinguished
c. Carrying amount of liability extinguished

TYPES AND MEASUREMENT OF BONDS

BOND PREMIUM AND DISCOUNT
METHODS OF AMORTIZING PREMIUM AND DISCOUNT
FAIR VALUE OPTION
EFFECTIVE INTEREST METHOD
ACCOUNTING FOR COMPOUND FINANCIAL INSTRUMENTS

INTERMEDIATE ACCOUNTING PART 2

 EQUITY SWAP - IFRIC 19
Carrying amount of the financial liability - initial
measurement of the equity instruments (profit/loss)

TYPES AND MEASUREMENT OF BONDS

BOND PREMIUM AND DISCOUNT
METHODS OF AMORTIZING PREMIUM AND DISCOUNT
FAIR VALUE OPTION
EFFECTIVE INTEREST METHOD
ACCOUNTING FOR COMPOUND FINANCIAL INSTRUMENTS

INTERMEDIATE ACCOUNTING PART 2

 MODIFICATION OF TERMS
may involve either interest, maturity value or both
PFRS 9 provides that a substantial modification of terms of
an existing financial liability shall be accounted for as an
extinguishment of the old liability and the recognition of a
new financial liability.
there is substantial modification of terms if the gain or loss
on extinguishment is at least 10% of the old financial
liability.

TYPES AND MEASUREMENT OF BONDS

BOND PREMIUM AND DISCOUNT
METHODS OF AMORTIZING PREMIUM AND DISCOUNT
FAIR VALUE OPTION
EFFECTIVE INTEREST METHOD
ACCOUNTING FOR COMPOUND FINANCIAL INSTRUMENTS

INTERMEDIATE ACCOUNTING PART 2

 MODIFICATION OF TERMS
C.A of the old liability - PV of new or restructured liability
(gain or loss on extinguishment of debt)
old effective rate is used in computing the PV of new liability
any cost or fees incurred as a result of the substantial
modification of terms (part of gain or loss on
extinguishment)

TYPES AND MEASUREMENT OF BONDS

BOND PREMIUM AND DISCOUNT
METHODS OF AMORTIZING PREMIUM AND DISCOUNT
FAIR VALUE OPTION
EFFECTIVE INTEREST METHOD
ACCOUNTING FOR COMPOUND FINANCIAL INSTRUMENTS

INTERMEDIATE ACCOUNTING PART 2