F10: Troubled Debt Restructurings

Question 1

Troubled debt restructuring definition

Answer 1

The creditor allows the debtor certain concessions to improve the likelihood of collection that would not be considered under normal circumstances

Question 2

Examples of concessions made

Answer 2

• Reduced interest rates
• Extension of maturity dates
• Reduction of face amount of debt
• Reduction of amount of accrued interest

Question 3

Troubled debt restructurings are often the result of what?

Answer 3

Legal proceedings or of negotiation between parties

Question 4

Debtor Reporting: For transfer of assets, calculation for ordinary gain/loss

Answer 4

FV asset transferred
- NBV asset transferred
= Ordinary gain/loss

Question 5

Debtor Reporting: For transfer of assets, calculation for possible extraordinary gain (NEVER A LOSS)

Answer 5

Carrying amount of payable
- FV of asset transferred
= Gain (possibly extraordinary)

Question 6

Debtor Reporting: For transfer of equity interest, calculation for possible extraordinary gain (NEVER A LOSS)

Answer 6

Carrying amount of the payable
- FV equity transferred
= Gain (possibly extraordinary)

Question 7

A restructuring that does not involve the transfer of assets or equity will often result in what?

Answer 7

A modification of the terms of the debt

Question 8

How does the debtor account for the modification?

Answer 8

Prospectively

Question 9

Creditor Reporting: when a creditor has received assets or equity as a full settlement, how are they accounted for?

Answer 9

At fair value at the time of restructuring

Question 10

Credit Reporting: The excess of the recorded receivable over the fair value of the asset received is recognized as what?

Answer 10

An ordinary loss