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Title: Financial Accounting :Notes Payable and Debt Restructuring
Description: Summary for Notes Payable and Debt Restructuring
Description: Summary for Notes Payable and Debt Restructuring
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Initial Measurement of Notes Payable
- Fair value less any directly attributable transaction costs on the issue of the note
payable
...
Subsequent Measurement of Notes Payable
- Amortized cost using the effective interest method
- At FVPL if the note was designated irrevocable on issue to be measured at FVPL (FV
Option)
• Interest Expense = Face amount x Nominal interest rate
• Change in FV
o Attributable to credit risk = OCI
o Not credit risk = P/L
Debt Restructuring
- The creditor grants to the debtor concession due to the latter’s financial difficulty
...
- Common forms of debt restructuring:
1
...
Equity swap
3
...
-The debtor computes gain or loss on the extinguishment as the difference between
carrying amount of the liability, including any accrued interest, and the carrying amount of the
asset transferred
...
Gain or loss on exchange/transfer/disposal
= Difference between FV of asset transferred and CV of asset transferred
2
...
- Measurement of share capital in order of priority:
1
...
FV of liability
3
...
-Such gain or loss is a separate line item in the income statement
...
- The difference between the carrying amount of the old liability and the present value of
the new/modified liability and any fees between the entity and the lender, using the original
effective interest rate is computed
...
• Cancel the old liability and recognize a new liability at fair value
...
• Recognize gain or loss on extinguishment as the difference between
the carrying amount of the old liability and the fair value of the new
liability
...
- If the difference computed is less than 10% of the carrying amount of the old liability,
there is no extinguishment (non-substantial modification)
...
• The gain or loss on modification is computed as difference between
CV of the old liability and the PV of the modified liability
...
• The original effective interest rate is adjusted to reflect such costs
Title: Financial Accounting :Notes Payable and Debt Restructuring
Description: Summary for Notes Payable and Debt Restructuring
Description: Summary for Notes Payable and Debt Restructuring