This statement regulates the financial accounting standard and the reporting of the restructuring of problematic debts, either for the debtor or for the creditor. This statement does not cover the accounting for the provision for uncollectible receivables and does not regulate the method of estimating uncollectible receivables.
For the purpose of this statement, a restructuring of a problematic debt occurs if, based on economic or legal consideration, the creditor grants a special concession to the debtor, namely a concession which would not be given if the debtor were not in a financial difficulty. The concession may originate from an agreement between the creditor and the debtor or from a court verdict or from legal statutes. As an example, the creditor may restructure the terms of the debt to alleviate the burden of the short term need for cash of the debtor. Many loan restructuring efforts cover the changes in the borrowing terms to minimize and to defer the cash payment required by the debtor in a short period to help the debtor improve tis financial position so it can pay back its debts to the creditor. As an Example, the creditor can receive cash, other asset, or shares from the debtor as payment of the debtor\u2019s liabilities, although the value received by he creditor is lower than the total debts payable by the debtor, since the creditor considers that this step will maximize the recovery of investment conducted by the creditor.
Whatever the form of concession given by the creditor to the debtor in the restructuring of problematic debt is, the objective of the creditor is to obtain the best under a difficult situation. The creditor expects to obtain more cash or other value from the debtor, or to increase the probability of receiving cash by granting a concession as compared to not granting any concession at all.
In this statement, a receivable or a debt (collectively referred to as debt) constitute a contractual right to receive cash or a contractual obligation to pay cash based on demand or on a specified date, which is shown as an asset or liability on the balance sheet of the debtor or creditor at the time the restructuring takes place. Receivables or payables included in the restructuring of problematic debt generally occurs as a result of loans or the lending out of cash, investment in debt securities previously issued, or the purchase or sale of goods and services on a credit basis. Examples are receivables or payables, promissory notes, debentures and bonds (secured or unsecured or convertible or non-convertible), and if any, interest due related to the debts. Generally, the restructuring of each receivable or payable is negotiated separately, however, quite often two or more receivables or payables are negotiated simultaneously. For
instrument on an individual basis with each creditor. For the purpose of this statement, the restructuring of each receivable or payable, including those negotiated and restructured at the same time, must be accounted for on an individual basis. The reference is the substance, not the formal form. As an example, for a debtor, a bond constitutes a liability, although there are many holders of the bonds.
a. The transfer of the following assets : real estate, receivable from a third party or other assets from the debtor to the creditor to settle a part or the entire debt (including transfer resulting from reacquisition or collateral confiscation (seizure)).
b. The issuance of new shares or the delivery of the debtor\u2019s shares to settle a part of or the entire debt, except if the shares are delivered to fulfill a pre- determined condition to convert debt into shares (for example the exchange of a convertible bond).
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