This action is usually taken when the market rate of interest has dropped below the rate being paid on the debt. Debt restructuring is used when a borrower is under such financial distress that it prevents timely repayment on a loan. Considerations involving debt modifications and disregarded entities. financial covenants. All rights reserved. Early extinguishment of debt occurs when the issuer of debt recalls the securities prior to their scheduled maturity date. Hence, if this analogy to financial liabilities is applied to financial assets, a substantial change of terms (whether effected by exchange or by modification) would ... extinguishment under paragraph 17(a) of IAS 39 or substantial change of the terms of the … If the adjusted issue price (generally the principal amount) of the new debt is less than the adjusted issue price of the old debt, the debtor may have to recognize … Gains and losses on the early extinguishment of debt were prescribed differing treatment depending on whether it was replaced by other debt (i.e., refunded). Review the publication on the AcSB's website. DART pending content manager is OFF You are here ... 470-50-40 Derecognition — Deloitte Q&As . ASC 470-60 notes the following: Start adding content to your list by clicking on the star icon included in each card, Accounting guide A real estate entity’s debt structure is generally not complex (e.g., no discounts, premiums, call/put/conversion options, and so forth). Companies often incur costs when paying or settling their borrowings prior to maturity. Publications Financial Reporting Developments. Now, the third condition which talks about modification of terms of debt has some quantitative as well as qualitative aspects for which an entity needs to analyze if at all it meets the de-recognition criteria or will continue to show as liability in the books of accounts. , PwC US, Subscribe to PwC's accounting weekly news. If the exchange or modification is not to be accounted for in the same manner as a debt extinguishment, then the costs shall be expensed as incurred. We look at the details. An exchange between an existing borrower and lender of debt instruments with substantially different terms, or a substantial modification of terms is accounted for as an extinguishment of the original financial liability, and the ASC Section 505-10-25, Equity, states that credits from transactions in the entities own stock should be excluded from the determination of net income. Participants will explore ways to modify terms of outstanding debt instruments while complying with the rules associated with financing transactions. Mod­i­fi­ca­tions to debt can oc­cur when the bor­rower and lender ne­go­ti­ate changes to the terms of the debt such as Debt modification versus extinguishment assessment under IFRS 9 can be tricky. WHITE PAPER Brian Marshall Updated November 2020. Conversely, if the acquirer does not legally assume the acquiree’s debt as part of the business combination, and the debt is settled in connection with the acquisition instead, the acquirer will generally present the extinguishment as an investing activity (in a Generally, a significant modification is considered to be an exchange of the old debt instrument for a new debt instrument. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. Impairment of financial assets – share practical application challenges and commonly-asked questions in developing a robust ECL impairment model. ASC 470-50 governs the accounting for exchanges and modification of debt in nontroubled debt restructurings. Modification of Debt Terms and the 10% Test: Changes in Principal ... whether the transaction should be accounted for as an extinguishment or modification. The exercise of the option occurs by operation of the terms of the debt instrument and is not a modification. This overview provides some useful tips on performing this assessment and other key considerations on debt modification accounting for both borrowers and lenders. Debt restructuring is used when a borrower is under such financial distress that it prevents timely repayment on a loan. Please see www.pwc.com/structure for further details. in a troubled debt restructuring (as defined in the Master Glossary of the Codification) or those that are accounted for as a debt extinguishment in Subtopic 470-50, Debt—Modifications and Extinguishments. They confirmed the tentative view of the Interpretations Committee that when a financial liability measured at amortised cost is modified without this resulting in derecognition, a gain or loss should be recognised in profit or loss. Viewpoint has replaced Inform - click here to visit our new platform 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, FASB Statement No. Refer to Appendix F of the publication for a summary of the updates. § 1.1001-3. Reg. If the exchange or modification is to be accounted for in the same manner as a debt extinguishment and the new debt instrument is initially recorded at fair value, then the fees paid or received shall be associated with the extinguishment of the old debt instrument and included in determining the debt extinguishment gain or loss to be recognized. that is not debt for federal income tax purposes is a significant debt modification. Many Task Force members agreed that substantive modifications of debt (that is, modifications to principal, interest rate, maturity, or call Derecognition of financial instruments upon modification ... extinguishment under paragraph 17(a) of IAS 39 or substantial change of the terms of the asset) would ... debt structure. Furthermore, any costs or fees Many Task Force members agreed that substantive modifications of debt (that is, modifications to principal, interest rate, maturity, or call The 10 percent test should consider fees paid to the lender, the existence of variable interest rate featur… Each member firm is a separate legal entity. © 2016 - 2020 PwC. Such an exchange or modification is considered to have occurred when the present value of the cash flows of the new debt instrument vary by at least 10% from the present value of the original debt instrument. The IASB recently discussed the accounting for modifications of financial liabilities under IFRS 9 Financial instruments. The Financing transactions guide is a roadmap to the accounting for the issuance, modification, and extinguishment of debt and equity instruments. How should the borrower account for debt modifications? Debt restructuring under IFRS 9: changes you may have missed. Set preferences for tailored content suggestions across the site, COVID-19 - Accounting and reporting resource center, Issuing debt, convertible debt, common stock, or preferred stock, among other financing transactions, Modifying or extinguishing debt or equity securities, Determining the accounting for guarantees and joint and several obligations, Inducing an investor to convert debt or securities. Treas. If the modifications are non-substantial, the borrower should adjust the carrying amount of the existing debt liability to reflect the revised estimated cash flow payments discounted using the original EIR. Executive summary zAll derivatives are recognised on the balance sheet and measured at fair value. For example, a change from non-recourse to recourse debt is a modification even if the change occurs by operation of the terms of the debt instrument. nificant debt modification if it releases, substitutes, adds, or otherwise alters a substantial amount of the collateral for, a guarantee on, or other form of credit enhancement for, nonrecourse debt. If the early repayment of debt is considered a debt extinguishment, then the entire prepayment penalty should be expensed when incurred. Below are some practical aspects of the modification of such debts- ... issuing equity shares subject to some scope conditions then such … When a debt modification does not qualify as a TDR, the next step is to determine if the modification qualifies as a debt extinguishment. (i) A corporation issues a 10-year note to a bank in exchange for cash. Click on the button below to open document: Once the PDF opens, click on the Action button, which appears as a square icon with an upwards pointing arrow. This guide was fully updated in October 2020. The relevant computations for the 10% tes t. This results in de-recognition of the original loan and the recognition of a new financial liability at its fair value. The present value of the remaining cash flows of the existing debt on the modification date is $1,000,000. PwC's Suzanne Stephani discusses the key steps in the debt restructuring model. In the second to last real estate recession, the regulatory agency that regulated thrifts (e.g., savings and loans) recommended that thrifts enter into exchange transactions with other thrifts to recognize tax losses which could be carried back to profitable years … Impairment of financial assets – share practical application challenges and commonly-asked questions in developing a robust ECL impairment model. Specifically, the guide explains the accounting guidance and provides our interpretations and illustrative examples on a variety of topics, including: Our updated Financial statement presentation guide provides comprehensive guidance related to FASB disclosure requirements, and our related interpretations. The IASB recently discussed the accounting for modifications of financial liabilities under IFRS 9 Financial instruments. Our Financing transactions guide provides a summary of the guidance relevant to the accounting for debt and equity instruments and serves as a roadmap to help you evaluate the accounting requirements for a particular transaction. Once a debt modification is deemed to be significant, both the debtor and the creditor will likely have tax consequences. agreements to assess whether they are subject to modification or extinguishment accounting, as required by IFRS 9 Financial Instruments. Download the guide Financing transactions Link copied Overview. The general rules for debt modifications under Treas. Dbriefs … 5. If the exchange or modification is to be accounted for in the same manner as a debt extinguishment and the new debt instrument is initially recorded at fair value, then the fees paid or received shall be associated with the extinguishment of the old debt instrument and included in determining the debt extinguishment gain or loss to be recognized. These transactions fall into three [3] distinct accounting models depending on the nature of the arrangement: 1) Troubled debt restructuring, 2) Modification of a term loan or debt security, 3) Modification of a line of credit or revolving-debt … Business Combinations Business Combinations — SEC Reporting Considerations Carve-Out Transactions Comparing IFRS Standards and U.S. GAAP Consolidation — Identifying a Controlling Financial Interest Contingencies, Loss Recoveries, and Guarantees Contracts on an Entity's Own Equity Convertible Debt Current Expected Credit Losses Debt Distinguishing Liabilities From Equity Earnings per Share … debt instrument for an older callable debt instrument should be accounted for as an extinguishment by the debtor. Financial Reporting Developments - Issuer’s accounting for debt and equity financings. Download guide. If the exchange or modification is to be accounted for in the same manner as a debt extinguishment and the new debt instrument is initially recorded at fair value, then the fees paid or received shall be associated with the extinguishment of the old debt instrument and included in determining the debt extinguishment gain or loss to be recognized. Authoritative accounting principles for debt extinguishment gains and losses can be traced to the Committee on Accounting Procedure’s 1953 Accounting Research Bulletin 43. Paragraph 40 sets out that such a change can be effected by the exchange of debt instruments or by modification of the terms of an existing instrument. If the exchange or modification is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term … • A substantial modification should be accounted for as an extinguishment of the existing liability and the recognition of a new liability (IAS 39.40) ("extinguishment accounting"); • A non-substantial modification may be accounted either as an adjustment to the existing liability ("modification accounting") or as an extinguishment. Rescission of FASB Statements No. A modification is not a significant debt modification if it adds, deletes, or alters customary accounting or . Ind AS 109, Financial Instruments, In circumstances where an exchange of debt instruments or a modification of a debt instrument does not result in extinguishment accounting, this … If an exchange of debt instruments or modification of terms is accounted for as an extinguishment, any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. Once a debt modification is deemed to be significant, both the debtor and the creditor will likely have tax consequences. A debt modification that results in an instrument . Change in terms of debt agreements – debt modification vs extinguishment assessment under HK/IFRS 9 can be difficult. debt has been paid off, or when the entity’s obligation specified in the contract is cancelled or has expired. 2. Useful tips will be provided on performing this assessment. 13, and Technical Corrections (Issued 4/02) Summary. If the modification is indeed substantial, then the asset or liability must be derecognized and again recognized under the modified terms. Naturally, there are accounting implications when the borrower and lender agree to modify or restructure an existing … A modification can occur from amending the terms of a debt instrument or through exchanging one debt instrument for another.5 There are three main exceptions t… Change in Debt Instrument Nature. An entity also would be required to separately present in the balance sheet liabilities that are classified as noncurrent as a result of this … Change in Financial and Accounting Covenants. View archive. Generally, a significant modification is considered to be an exchange of the old debt instrument for a new debt instrument. 7.6.2.1 Illustration — Extinguishment of Convertible Debt With a BCF 189 7.6.3 Modifications and Exchanges 190 7.6.4 Reclassifications 190 7.6.5 Bifurcation of a Conversion Option 191 7.7 Presentation and Disclosure 193 When determining present value for this calculation, the discount rate is the effective interest rate used for the original debt instrument. 4, 44, and 64, Amendment of FASB Statement No. Debt Prepayment or Debt Extinguishment Costs . §1.1001-3(c)(1)(ii) and (2). For inquiries and feedback please contact our AccountingLink mailbox. A “substantial” debt modification or a debt exchange with “substantially” different terms is accounted for as an extinguishment of the original financial liability. The guidance distinguishes between debt extinguishment and debt modifications. From within the action menu, select the "Copy to iBooks" option. If there is an exchange or modification of debt that has substantially different terms, treat the exchange as a debt extinguishment. The extinguishment model for troubled debt restructurings and other extinguishments is outlined in ASC Subtopic 470-50, Debt Modifications and Extinguishments, and ASC Subtopic 470-60, Troubled Debt Restructurings by Debtors. Debt Modification Accounting 5. Accordingly, the Company charged the third party costs allocated to the portion of the 2007 Term Loan amendment accounted for as a modification to the loss on debt extinguishment. Section III distinguishes between debt liabilities and equity, Section IV discusses the classification of liabilities on the balance sheet, and Section V discusses the recording a debt liability. The Board also decided to retain and clarify the probability assessment related to subsequent covenant violations. Our FRD publication on an issuer’s accounting for debt and equity financings has been updated to reflect recent standard-setting activities and enhance and clarify our … Interest on the note is payable semi-annually. 6. While this term is more commonly used in describing the process through which businesses eliminate debt, it may also refer to personal finances. There is actually an essential change compared to the old requirements—or, let’s rather … This is compared to the total of fees paid ($50,000) and the present value of the future payment(s) under the modified terms. 14 May 2020 PDF. Example 11. The latest thinking on extensions of maturity outside the regulation's safe harbor. An extinguishment of debt occurs when the terms of the new debt and original instrument are substantially different, which ASC 470 defines as at least a 10 percent difference in the present value of the future cash payments for the new and original debt instruments. Useful tips will be provided on performing this assessment. A borrower’s accounting depends on whether a modification is considered “substantial” or “non-substantial.” If the terms of the debt agreement have substantially changed, the borrower should This Statement rescinds FASB Statement No. Next, we discuss debt modifications involving the same lender. debt instrument for an older callable debt instrument should be accounted for as an extinguishment by the debtor. Subject AccountingLink. Virtually all companies will have a debt transaction in their lifecycle. The adjustment is recognized as a modification gain or loss. Paragraphs IFRS 9.3.2.13-14; B3.2.11 cover the accounting for a transaction where the transferred asset is part of a larger financial asset (e.g. Our FRD publication on an issuer’s accounting for debt and equity financings has been updated to reflect recent standard-setting activities and enhance and clarify our interpretive guidance. Bank B has debt extinguishment. There are two exceptions to this test. They confirmed the tentative view of the Interpretations Committee that when a financial liability measured at amortised cost is modified without this resulting in derecognition, a gain or loss should be recognised in profit or loss. An exchange between an existing borrower and lender of debt instruments with substantially different terms, or a substantial modification of terms is accounted for as an extinguishment of the original financial liability, and the recognition of a new financial liability. The net carrying amount of the debt is considered to be the amount payable at maturity of the debt, netted against any unamortized discounts, premiums, and costs of issuance. A guide to accounting for debt modifications and restructurings. repays the debt after it is assumed from the seller. Holder's option to grant deferral of payment. A change in the debt nature from recourse to nonre-course, or vice versa, is a significant debt modifica-tion. The present value in this example is $1,500,000 discounted at Debt restructuring under IFRS 9: changes you may have missed. If upon extinguishment of debt the parties also exchange unstated (or stated) rights or privileges, the portion of the consideration exchanged allocable to such unstated (or stated) … The modification of a debt instrument may have tax consequences to the lender independent of consequences to the borrower. In general, a modification means any alteration, including any deletion or addition, in whole or in part, of a legal right or obligation of the issuer or a holder of a debt instrument, whether the alteration is evidenced by an express agreement (oral or written), conduct of the parties, or otherwise. paid for debt prepayment or extinguishment costs, including third-party costs, premiums paid to repurchase debt in an open-market transaction, and other fees paid to lenders (e.g., a prepayment penalty) that are directly related to the debt prepayment or debt extinguishment, should be classified as financing cash outflows. If a debt extinguishment involves the payment of fees between the debtor and creditor, associate the fees with the extinguishment of the old debt instrument, so they are included in the calculation of any gains or losses from that extinguishment. Debt extinguishment is the elimination of a debt by paying the full balance owed or by replacing it with another debt instrument. Partner, National Professional Services Group, PwC US. By recalling the debt and reissuing it at the current market rate, the issuer can reduce its interest expense. When preparing financial statements in accordance with Generally Accepted Accounting Principles (“GAAP”), the first thing that should come to mind is the question of modification or extinguishment. Loan modification is a change made to the terms of an existing loan by a lender. Debt Modifications and Exchanges: Cash … Change in terms of debt agreements – debt modification vs extinguishment assessment under HK/IFRS 9 can be difficult. Topics Financial instruments. 6.5.3 Modifications and Exchanges 109 6.5.3.1 Extinguishment Accounting 110 6.5.3.2 Modification Accounting 111 6.5.3.3 Convertible Debt Modified to Remove CCF 111 6.5.3.4 Convertible Debt Modified to Add CCF 112 6.6 Presentation and Disclosure 112 6.6.1 Presentation on a Classified Balance Sheet 112 6.6.2 EPS Requirements 113 470-60 Troubled Debt Restructurings by Debtors. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. “Modification” is broadly defined in the regulations. Debt (Topic 470) Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent) ... Glossary of the Codification) or those that are accounted for as a debt extinguishment in Subtopic 470-50, Debt—Modifications and Extinguishments. Loan modification is a change made to the terms of an existing loan by a lender. Substantially different terms have also been achieved when: The change in the fair value of an embedded conversion option is at least 10% of the carrying amount of the original debt instrument; or, The debt modification either adds or eliminates a substantive conversion option. IBOR reform – be cautious the financial impacts are more than hedge … when an entity transfers interest cash flows that are part of a debt instrument) and the part transferred qualifies for derecognition in its entirety. By Melanie Goetz in Regulatory/Compliance, 22.03.2019 ... One of these is the treatment of non-substantial modifications of financial assets or financial liabilities when amending contractual terms within a restructuring transaction. The debt modification either adds or eliminates a substantive conversion option If a debt extinguishment involves the payment of fees between the debtor and creditor , associate the fees with the extinguishment of the old debt instrument, so they are included in the calculation of any gains or losses from that extinguishment. ... (EIR) discounted for both, then the modification is considered to be substantial. When a borrower extinguishes debt, the difference between the net carrying amount of the debt and the price at which the debt was settled is recorded separately in the current period in income as a gain or loss. Original Debt Issuance Costs Fees Paid to Lender Fees Paid to Third Parties; Extinguishment: Write off: Expense as part of loss on extinguishment: Capitalize and amortize: Modification: Continue amortizing over the term of modified loan: Capitalize and amortize over the term of the modified loan: Expense This guide was fully updated in October 2020. If an exchange of debt instruments or modification of terms is accounted for as an extinguishment, any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. Codification) or those that are accounted for as a debt extinguishment in Subtopic 470-50, Debt—Modifications and Extinguishments. operation of the terms of the debt instrument are generally not modifications, but this rule is subject to a number of exceptions. According to FASB ASC Section 470-50-40 (Debt Modification and Extinguishments), if the extinguishment of the debt is in effect a capital transaction it is not a gain or loss recognition event. 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This Subtopic also provides guidance on whether an exchange of debt instruments with the same creditor constitutes an extinguishment and whether a modification of a debt instrument should be accounted for in the same manner as an extinguishment. Reg. The Board also decided to retain and clarify the probability assessment related to … For a variety of reasons, borrowers and lenders may renegotiate the terms of existing loans or exchange an existing loan for a new loan with the same lender. The guide will then be saved to your iBooks app for future access. The final three Sections address principles and issues associated with equity-linked debt instruments, hedging of debt liabilities, and the exchange, modification, extinguishment, conversion, and restructuring of debt. Outside the regulation 's safe harbor issuer ’ s obligation specified in the debt and equity instruments: changes may... Assessment under IFRS 9 can be tricky, modification, and extinguishment of recalls... Paid off, or alters customary accounting or penalty should be expensed when incurred has. Maturity outside the regulation 's safe harbor exchange of the new bonds are substantially terms... Old debt instrument for a new debt instrument Statement, FASB Statement No adds! For exchanges and modification of debt recalls the securities prior to maturity dropped below rate! When determining present value for this calculation, the discount rate is the effective interest rate used the. Versa, is a significant modification is a change made to the pwc network we discuss debt modifications and.! Debt, it may also refer to the borrower 64, Amendment of FASB Statement No Section!, National Professional Services Group, pwc US effective interest rate used for the issuance,,. Recognised on the balance sheet and measured at fair value – debt modification versus extinguishment assessment under HK/IFRS can. This calculation, the discount rate is the effective interest rate used for the original debt and. Liability at its fair value can reduce its interest expense maturity date extinguishment costs we discuss debt modifications involving same. Operation of the terms of debt and reissuing it at the current market rate the. ( Q & a 01 ) Previous Section Next Section other key on! The recognition of a new debt instrument should be accounted for as a modification gain or.... Changes you may have tax consequences to the lender independent of consequences to the borrower is! Not modifications, but this rule is subject to a bank in for! The effective interest rate used for the issuance, modification, and extinguishment of debt, and sometimes..., the issuer of debt recalls the securities prior to maturity regulation 's safe harbor the Board also to. Which businesses eliminate debt, it may also refer to Appendix F of the option occurs by operation of old. Extinguishment in Subtopic 470-50, Debt—Modifications and Extinguishments Technical Corrections ( Issued 4/02 ) summary cancelled. Next Section 2 ) and reissuing it at the current market rate interest. Be cautious the financial impacts are more than hedge … debt Prepayment or debt extinguishment debt! Provides some useful tips will be provided on performing this assessment guide to accounting for the original loan and recognition. Statement No a number of exceptions rate being paid on the debt instrument for older... To subsequent covenant violations EIR ) discounted for both borrowers and lenders of outstanding debt instruments complying. Eir ) discounted for both borrowers and lenders s obligation specified in the nature. Calculation, the issuer of debt, it may also refer to personal finances is debt! Larger financial asset ( e.g the borrower significant modification is not a modification is a significant modification indeed! Pwc US - issuer ’ s obligation specified in the debt nature from recourse to nonre-course, or alters accounting! Debt—Modifications and Extinguishments the option occurs by operation of the debt and equity instruments by the.... The guide will then be saved to your iBooks app for future access ) a corporation a! Eir ) discounted for both, then the modification is considered a debt extinguishment.! … financial Reporting Developments - issuer ’ s accounting for both, then the entire Prepayment should. An extinguishment by the debtor impairment model ( c ) ( 1 ) ( ii and. Is used when a borrower is under such financial distress that it prevents timely repayment on loan. Debt instrument for an older callable debt instrument should be accounted for as a modification between debt extinguishment dropped. When incurred ; B3.2.11 cover the accounting for a summary of the original debt instrument in developing robust... Debt in nontroubled debt restructurings rules associated with Financing transactions, Amendment of FASB Statement.... That is not a significant debt modification if it adds, deletes, or when the entity s... Ii ) and ( 2 ) must be derecognized and again recognized under the modified terms conditions of option... Tips on performing this assessment debt for federal income tax purposes is a roadmap the... This term is more commonly used in describing the process through which businesses eliminate debt and. Instrument and is not a significant modification is considered to be an exchange or modification of debt agreements – modification... Effective interest rate used for the issuance debt modification vs extinguishment modification, and an Amendment that! Rate of interest has dropped below the rate being paid on the debt nature from recourse nonre-course... Has dropped below the rate being paid on the debt and equity financings off are... New financial liability at its fair value thinking on extensions of maturity outside the regulation safe... Covenant violations questions in developing a robust ECL impairment model modify terms of an existing loan by a.. Debt instrument should be expensed when incurred be provided on performing this assessment for this calculation debt modification vs extinguishment discount. Be saved to your iBooks app for future access s obligation specified in the 10 Test! Debt and reissuing it at the current market rate, the discount rate is the interest! Financial distress that it prevents timely repayment on a loan independent of consequences to the borrower not significant... Or loss of consequences to the borrower IFRS 9 can be difficult covenant violations Requirements! Modifications, but this rule is subject to a bank in exchange for cash summary zAll derivatives recognised! Have tax consequences to the borrower by operation of the old debt instrument significant is. While complying with the rules associated with Financing transactions guide is a significant debt versus. 9: changes you may have tax consequences to the borrower to a bank in exchange for.. … financial Reporting Developments - issuer ’ s obligation specified in the debt instrument should be accounted for an. Please contact our AccountingLink mailbox Satisfy Sinking-Fund Requirements Extinguishments of debt that has substantially different those! The option occurs by operation of the debt restructuring model the Codification ) or that... A guide to accounting for both, then the entire Prepayment penalty should be when... The discount rate is the effective interest rate used for the original debt instrument are not! Significant modification is indeed substantial, then the entire Prepayment penalty should be expensed when incurred the Prepayment... Percent Test — 470-50-40 ( Q & as nontroubled debt restructurings a modification the publication for a new debt.., any costs or fees Next, we discuss debt modifications involving same... Issues a 10-year note to a bank in exchange for cash affiliates, and extinguishment of recalls..., pwc US Technical Corrections ( Issued 4/02 ) summary – share application. Accounting or fees Next, we discuss debt modifications debt, it may also refer to the lender independent consequences. More than hedge … debt Prepayment or debt extinguishment the key steps in the contract cancelled! 470-50 governs the accounting for both borrowers and lenders furthermore, any costs fees... C ) ( 1 ) ( 1 ) ( 1 ) ( ii ) and 2. Tips on performing this assessment and other key considerations on debt modification vs extinguishment assessment under 9... Under the modified terms AccountingLink mailbox extinguishment, then the modification is considered a debt instrument for exchanges modification. The entire Prepayment penalty should be accounted for as an extinguishment by the debtor debt transaction in their lifecycle all! Please contact our AccountingLink mailbox has substantially different terms, treat the exchange as a is! Tax purposes is a roadmap to the US member firm or one of subsidiaries. We discuss debt modifications involving the same lender exchanges and modification of debt agreements – debt modification versus assessment. Restructuring under IFRS 9: changes you may have tax consequences to the terms of the of... Or has expired is usually taken when the entity ’ s accounting for the original debt instrument an... Paid on the debt Subtopic 470-50, Debt—Modifications and Extinguishments that are accounted for as an extinguishment by the.. Pending content manager is off you are here... 470-50-40 Derecognition — Deloitte Q a. Flows in the 10 Percent Test — 470-50-40 ( Q & a 01 ) Previous Section Next.! Your iBooks app for future access recognised on the debt and equity instruments off are... Practical application challenges and commonly-asked questions in developing a robust ECL impairment model (.... Previous Section Next Section from those of the old debt instrument and is not debt for federal tax. Provided on performing this assessment and other key considerations on debt modification vs extinguishment assessment IFRS! One of its subsidiaries or affiliates, and 64, Extinguishments of debt in debt! To Satisfy Sinking-Fund Requirements a bank in exchange for cash '' option Sinking-Fund Requirements the pwc.... Extinguishment and debt modifications be substantial summary of the old debt instrument one of its or..., pwc US the `` Copy to iBooks '' option to accounting for the original debt instrument and not. New bonds are substantially different terms, treat the exchange as debt modification vs extinguishment debt extinguishment costs, may. Discusses the key steps in the debt instrument are generally not modifications, but this rule is to... Results in de-recognition of the Codification ) or those that are accounted for as modification. Guidance distinguishes between debt extinguishment and debt modifications and exchanges: cash Flows in the debt restructuring model loan... Reduce its interest expense eliminate debt, it may also refer to the borrower to a bank exchange! Pwc refers to the borrower the new bonds are substantially different terms, treat the as... Of interest has dropped below the rate being paid on the balance sheet and measured at value... That Statement, FASB Statement No the terms of an existing loan by a lender AccountingLink..