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    Debt Restructuring

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    PushTheStart Gaming
    1) Debt restructuring is when a creditor grants concessions to a debtor due to financial difficulties, such as modifying the terms of the debt. 2) The main types of debt restructuring are asset swaps, where the debtor transfers assets to the creditor to pay off debt, and equity swaps, where the debtor issues equity to the creditor to pay off debt. 3) Debt restructuring is accounted for differently depending on whether the terms are substantially modified, resulting in extinguishment accounting, or not substantially modified, resulting in adjustment to the existing liability.

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    Debt Restructuring

    Uploaded by

    PushTheStart Gaming
    48 views4 pages
    1) Debt restructuring is when a creditor grants concessions to a debtor due to financial difficulties, such as modifying the terms of the debt. 2) The main types of debt restructuring are asset swaps, where the debtor transfers assets to the creditor to pay off debt, and equity swaps, where the debtor issues equity to the creditor to pay off debt. 3) Debt restructuring is accounted for differently depending on whether the terms are substantially modified, resulting in extinguishment accounting, or not substantially modified, resulting in adjustment to the existing liability.

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    DEBT RESTRUCTURING

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    1) Debt restructuring is when a creditor grants concessions to a debtor due to financial difficulties, such as modifying the terms of the debt. 2) The main types of debt restructuring are asset swaps, where the debtor transfers assets to the creditor to pay off debt, and equity swaps, where the debtor issues equity to the creditor to pay off debt. 3) Debt restructuring is accounted for differently depending on whether the terms are substantially modified, resulting in extinguishment accounting, or not substantially modified, resulting in adjustment to the existing liability.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    48 views4 pages

    Debt Restructuring

    Uploaded by

    PushTheStart Gaming
    1) Debt restructuring is when a creditor grants concessions to a debtor due to financial difficulties, such as modifying the terms of the debt. 2) The main types of debt restructuring are asset swaps, where the debtor transfers assets to the creditor to pay off debt, and equity swaps, where the debtor issues equity to the creditor to pay off debt. 3) Debt restructuring is accounted for differently depending on whether the terms are substantially modified, resulting in extinguishment accounting, or not substantially modified, resulting in adjustment to the existing liability.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 4

    mauwi sa court upang masiguro na meron

    DEBT talagang makokolekta si creditor.)


    RESTRUCTURING
    - The objective or the creditor in a
    debt restructuring is to make the best
    - It is a situation where the creditor, of a bad situation or maximize
    for economic or legal reasons, recovery of investment.
    related to the debtor’s financial
    (hindi nmn gusto ni creditor ang debt
    difficulties, grants to the debtor’s
    restructuring in the first place kasi
    concessions that would not otherwise
    hindi nmn tlga nya un gagawin sa
    be granted in a normal business
    normal business relationship. Alam
    relationship.
    nya kasi na may bad situation kaya si
    (sitwasyon kung saan si creditor ay creditor wants to make the best of a
    naunaawaan nya ang sitwasyon ni bad situation.)
    debtor sa kanyang pinagdadaanan na
    - Thus the creditor usually sustains an
    financial difficulties kaya xa nag
    accounting loss on debt restructuring
    grant kay debtor na tinawatawag na
    and the debtor usually realized on
    CONCESSION)
    accounting gain.
    (Concession – binabago nila ang dating
    pagkakautang ni debtor, kaya tinatawag NOTE: pinakatalo talaga dito si
    itong debt restructuring, na hindi naman tlga CREDITOR. POV hindi tayo ang
    ginagwa ni creditor sa normal business CREDITOR KUNDI TAYO ANG
    relationship. Dahil alam na ni creditor na DEBTOR.
    talo sya kaya baguhin nalng ang
    pagkakautang.)

    TYPES OF DEBT
    - The concession either stems from an RESTRUCTURING
    agreement between the creditor and
    debtor or is imposed by law or a
    court.
    ASSET SWAP
    (yung pagabbago ng utang ay
    between sa paguusap ng creditor at - is the transfer by the debtor to the
    debtor or kung ano ang creditor of any asset, such as real
    napagkasunduan nila at walang estate, inventory, receivables and
    korteng namagitan.) investment, in full payment of an
    obligation. (in short papalitan ng
    (meron naman korteng namagitan
    other asset ang dating pagkakautang
    kasi possible na ung isang party ay di nag
    ni debtor na cash kay creditor.)
    paparticipate sa debt restructuring or hindi
    pabor sa debt restructuring kaya maari itong
    - Under PFRS 9 asset swap is a NOTE: the gain on extinguishment under
    derecognition of a financial liability PFRS 9 includes both gain on exchange and
    or extinguishment of an obligation. gain on debt restructuring under USA
    - The difference between the carrying GAAP.
    amount of the financial liability and
    PFRS 9 shall be followed as this in
    the consideration given shall be
    conformity with international accounting
    recognized in profit or loss.
    standard.
    - Using PFRS 9

    An Entry is
    Dacion En Pago
    Debit to Notes payable
    Credit (CA of an asset)
    Debit(loss on extinguishment of
    - It arises when a mortgage property is
    debt) or Credit (gain on
    offered by the debtor in full
    extinguishment of debt)
    settlement of the debt.
    - The transaction shall be accounted as
    Under USA GAAP, asset swap is
    an “Asset Swap” form of debt
    recorded as if two transactions have
    restructuring. This requires
    taken place, namely, (1) the sale of
    recognition of gain or loss based on
    the asset and the (2) extinguishment
    the balance of the obligation
    of liability.
    including accrued interest and other
    charges.
    Accordingly, two gains or losses are
    - If the balance of the obligation
    recognized:
    including accrued interest and other
    o The difference between the
    charges is more than the carrying
    fair value of the asset and the
    amount of the property mortgage,
    carrying amount is the gain or
    there is a gain on extinguishment of
    loss on exchange.
    debt.
    o The difference between the
    - Otherwise if the balance of the
    carrying amount of the
    obligation is less than the carrying
    liability and the fair value of
    amount of the property, the is a loss
    the asset is gain or loss from
    on extinguishment.
    the restructuring.
    - An entry is
    Debit to notes payable(Extinguishment) EQUITY SWAP
    Credit (CA of the asset)
    Debit (loss on exchange)
    - is the issuance of share capital by the
    Credit (Gain on extinguishment) debtor to the creditor in full or partial
    payment of an obligation.
    - Under IFRIC 19 Extinguishment of MODIFICATION OF TERMS
    financial liabilities with equity
    instruments, the equity instruments
    issued to extinguish a financial - Modification may involve either the
    liability shall be measured at the interest, maturity value or both.
    following amounts in the order of - Interest concession may involve a
    priority: reduction of interest rate, forgiveness
    of unpaid interest or moratorium on
    1. FV of Equity interest.
    instruments issued - Maturity value concession may
    2. FV of liability involve an extension of the maturity
    date or a reduction of a principal
    extinguished
    amount.
    3. CA of liability
    extinguished
    - The difference between the Substantial – if more than 10%
    carrying amount of financial
    Non substantial – if less than 10%
    liability and the initial
    measurement of the equity
    instruments issued shall be NOTE: but if the qualification of
    recognized in profit or loss on modification has changed it will still be
    extinguishment of debt. Substantial.

    TIPS: JE
    Mostly nakalagay sa debit ay same
    lng from FV of EQUITY to CA of
    liability at ang nagbabago lang lagi
    ang CREDIT SIDE, magkakaroon
    lng ulit ang debit side kapag
    nagkaroon ng loss.
    Always magkahiwalay ang interest
    sa Face amount ng NOTES
    PAYABLE.
    Substantial Non substantial

    Account for modification as an


    Account for modification as an
    extinguishment of the existing
    liability and the recognition of a Accounting adjustment to existing liability
    (modification accounting”)
    new liability.

    Recognize the new liability at FV Restate the liability to net present


    FV = PV of revised CFs Liability value of revised cash flows
    discounted at prevailing EIR discounted at the original EIR

    Recognizes the difference


    between consideration (FV of Adjustment to the amortized cost
    new debt) and CA amount of old Diff on liability of the liability as a catch up in the
    debt, as a gain or loss in profit or profit or loss
    loss
    Costs or fees incurred as part of Cost or fees incurred as part of
    modification are recognized as modification are deducted to the
    part of the gain or loss on Cost or FEES liability and amortized over the
    extinguishment term of the modified liability.

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