F4 M6 Flashcards
Troubled Debt Restructuring
when is a gain from a transfer of assets recognized?
when there is an excess of the carrying amt of the payable over the fair value of assets given up
where are gains and losses on extinguishment of debt reported?
on the I/S for the period
recognize gain/loss on transfer of assets calc
FV of asset transferred
(NBV asset transferred)
= Gain/Loss
recognize gain of an asset transfer calc
carrying amt of payable
(FV asset transferred)
= gain
transfer of equity interest gain calc
carrying amt of the payable
(FV of equity transferred)
= gain
modification of terms
-a restructuring that does not involve a transfer of assets or equity interest
-restructuring accounted for prospectively
-debtor does not change carrying amt unless carrying amt > total future cash payments in new terms
total future cash payments
include principal and any accrued interest at time of restructuring under new payable terms
interest expense
-uses effective interest method
-discount rate where carrying amt = PV of future cash payments
future payments
future undiscounted cash payments < carrying amt = gain
-the debtor should reduce carrying amt as such
-all cash payments reduce carrying amt and no interest expense is recognized after date of restructure
when there are indeterminate future payments or future payments may exceed carrying amt?
-debtor does not recognize a gain or adjust carrying value of note
-debtor assumes future contingent payments will have to be made to remove a gain
combination of asset and equity interest transfer
-fair value of asset or equity interest first used to reduce carrying amt of payable
-gain or loss recognized between difference of fair value and carrying amt of any assets transferred
-no gain on restructuring unless carrying amt of payable > total future cash payments
-gains reported on income as part of continuing operations
when a loan is impaired?
-if it is probable that the creditor will be unable to collect all amts under original contract
-troubled debt restructuring is considered an impairment
when assets or equity are received
-creditor receives settlement, accounted for at fair value at time of restructuring
-fair value of receivable can be used if determinable than fair value of asset or equity
-in partial payment, creditor MUST use fair value of asset or equity received
when a loss is recognized upon receipt of assets or equity interests?
excess of receivable over fair value of asset received
treatment of loan impairment
-part of assessment of overall credit losses
-losses from troubled debt restructuring used in creditor’s estimate of its allowance for credit losses
-if discounted cash flow approach used, post-restructuring effective interest rate used as discount rate
