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Ia 2

1) Debt restructuring is when a creditor grants concessions to a debtor, such as modified terms, due to the debtor's financial difficulties. This would not occur in a normal business relationship. 2) Types of debt restructuring include asset swaps, equity swaps, and modification of terms. Asset swaps involve transferring assets to the creditor in payment of debt. Equity swaps replace debt with equity/shares in the debtor company. Term modifications change repayment schedules. 3) The document provides examples and journal entries for accounting for different types of debt restructuring transactions under Philippine accounting standards.

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331 views23 pages

Ia 2

1) Debt restructuring is when a creditor grants concessions to a debtor, such as modified terms, due to the debtor's financial difficulties. This would not occur in a normal business relationship. 2) Types of debt restructuring include asset swaps, equity swaps, and modification of terms. Asset swaps involve transferring assets to the creditor in payment of debt. Equity swaps replace debt with equity/shares in the debtor company. Term modifications change repayment schedules. 3) The document provides examples and journal entries for accounting for different types of debt restructuring transactions under Philippine accounting standards.

Uploaded by

Gelo Owss
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Debt

Restructuring
Hello!

2
What is Debt
Restructuring
It is 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.

4
Types of Debt Restructuring

1. Asset swap
2. Equity swap
3. Modification of terms

5
> Asset swap is 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.
> PFRS 9 treats asset swap as a
derecognition of a financial liability or
extinguishment of an obligation.
6
Equity Swap

> Is a transaction where by a debtor and


creditor may renegotiate the terms of a
financial liability is fully or partially
extinguished by the debtor issuing
equity instruments to the creditor
> This is the issuance of a share capital b
the debtor to the creditor if full or partial
payment of an obligation.
7
> IFRIC 19- Fair value of the equity
instruments issued, unless that FV
cannot be reliably measured.

8
Order of Priority

a) FV of equity instruments
b) FV of liability extinguished
c) Carrying amount of liability
extinguished
*If (c) is used there is no gain or loss of
extinguishment.

9
Modification of Terms

> 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 the new financial
liability

10
Problem
Solving no. 3
11
11. Equity Swap
(a) Solution
Fair value of share capital issued P1,320,000
Par value of issued shares 240, 000
Share premium P1,080,000

12
Carrying amount of note payable P1,200,000
Fair value of shares (1,320,000)
Loss on extinguishment of debt 120,000
(b) Journal entry
Note payable 1,200,000
Loss on 120,000
Extinguishment
Share Capital 240,000
Share Premium 1,080,000

14
12.
N/P 3,000,000
Loss from debt 900,000
Derecogition
Discount on N/P 800,000
Cash 1,000,000
Carrying amt. of land 2,100,000

15
FV of Land 2.2M
CA of Land 2.1M
Gain on exchange 100K

N/P 3M
Discount on N/P 800K
CA of NP 2.2M
Assets transferred:
cash (1M)
FV of land (2.2M)
Loss on debt 1M
derecognition

16
13. Same with 11

N/P 380,000
Share capital 200,000
Share premium 80,000
Gain on 100,000
derecognition
FV of shares issued 280,000
Par value of shares 200,000
Share premium 20,000

18
Carrying amount of N/P 350,000
FV of shares 280,000
Gain on derecognition of N/P 100,000

19
15. Modification of Terms

PV of principal 1,588,795
PV of interest(224,00 x 807,470
PV of new Loan 2,396,265
Face value of new loan 2,800,000
Discount on loan payable 403,735

20
Loan payable-old 3,000,000
Accrued interest payable 200,000
CA of old Loan 3,200,000
PV of new loan 2,396,265
Gain on extinguishment 803,735

21
1/1/x1 Loan Payable 3,000,000
Accrued interest 200,000
Discount on loan 403,735
payable
Loan payable 2,800,000
Gain on extinguishment 803,735
12/31/x1
Interest expense 287,552
Discount 63,552
Cash 224,000

22
Thanks!
Any questions?

23

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