Notes Payable and Debt Restructuring Flashcards
Are obligations accompanied by a written promise to pay a certain amount of money to the holder or bearer on a specified future date.
Notes Payable
TRUE OR FALSE
Notes Payable may arise from certain transactions, such as purchases and financing.
TRUE
TRUE OR FALSE
Notes are classified as current or non-current depending on its due date and may bear an interest or not.
TRUE
TRUE OR FALSE
Notes Payable that are not designated at fair value shall be measured at FAIR VALUE less TRANSACTION COST, which are directly attributable to the issuance of the said notes.
TRUE
TRUE OR FALSE
If the notes are DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS, the transaction cost shall be treated as an expense immediately.
TRUE
The fair value of the Notes Payable is equal to the ______ of the future cash payment to settle that note liability.
Present Value
After initial recognition, notes payable are measured either:
a. At amorized cost, using effective interest method
b. At fair value through profit or loss
When a company issued notes payable for cash, the present value to be recognized is the _____
Cash Proceeds
At initial measurement, an entity should record an interest bearing note at _______
Face Value
After initial measurement, an interest-bearing note should be measured at___
Face Value plus accrued interest
T OR F
A zero-interest-bearing note does have an interest component.
FALSE. Does NOT have interest component
T OR F
The interest in a zero-interest-bearing note is included in the face amount.
TRUE
In a zero-interest bearing note, interest is computed through the difference between the____
amount of cash received when note is signed and the higher face amount that is payable at maturity.
Refers to the alteration made by the creditor to the terms of loan. This enables the debtor to pay the amount owed.
Debt Restructuring
According to Valix, Peralta, & Valix, the objective of a creditor in a debt restructuring is to make the best out of a bad situation or _______.
maximize the recovery of investment
3 types of debt restructuring:
A. Asset Swap
B. Equity Swap
C. Modification of Terms
TYPE OF DEBT RESTRUCTURING
It 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.
Asset Swap
TYPE OF DEBT RESTRUCTURING
It is a transaction whereby a debtor and creditor may negotiate the terms of a financial liability with the result that the liability is fully or partially extinguished by the debtor issuing equity instrument to the creditor.
Equity Swap
T OR F
Basically, an equity swap is the issuance of share as payment of asset.
FALSE. payment of OBLIGATION
The equity instrument issued to extinguish a financial liability shall be measured at the following amounts in the order of priority:
A. Fair value of equity instrument issued
B. Fair value of liability extinguished
C. Carrying amount of liability
In an EQUITY SWAP, the difference between the carrying amount of the financial liability and the initial measurement of the equity instruments issued shall be recognized in ______
profit or loss
TYPE OF DEBT RESTRUCTURING
It is the change of either the interest, maturity value, or both.
Modification of Terms
T OR F
Applying IFRS 9 , the substantial modification of terms of an existing financial liability shall be accounted for as an extinguishment of the old financial liability, and the recognition of a new financial liability.
TRUE
There is substantial modification of terms if the gain or loss on extinguishment is at least ____ or more than 10% of the old financial liability.
10%
