Other Financial Reporting Areas

Question 1

current cost financial statements

Answer 1

current cost financial statements (FV) report items in current costs. an increase in current costs of COGS is a holding gain, of inventory is an unrealized holding gain.

Question 2

debt settled - debtor gains

troubled debt restructuring

Answer 2

debtor - reduction in liability is a gain.

if paid with another asset/property, then get gain on asset given up…
gain on asset given up FV asset - CV asset

if liability is reduced, then gain on reduction
gain on debt cancel CV debt - FV asset

if paid-off with asset and there is a reduced liability, then recognize BOTH the above gains

Question 3

debt settled - creditor losses

troubled debt restructuring

Answer 3

any assets received are recorded at FV
loss on debt reduction recognized

CV debt - FV asset

Question 4

modification of terms

troubled debt restructuring

Answer 4

creditor:
impairment loss based on PV of expected future cash flows discounted at loans ORIGINAL effective rate

debtor:
if CV > non-discounted future payments…
CV of debt reduced and gain realized
gain = CV of debt - nondiscounted FCF

the future interest expense becomes a new note
payable

if CV < nondiscounted future payments…
interest rate is reduced
CV of debt is unchanged, resulting in no gain
new effective interest rate computed, where
current CV debt = PV FCF