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PSAK 54-rev

PSAK 54-rev

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Published by: api-3708783 on Oct 14, 2008
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05/09/2014

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Accounting of the restructuring of problematic debts
SFAS No. 54
CONTENTS
Paragraph
PREFACE
01 - 09
Objective
01 - 09
Scope
01 - 04
Definitions
05
ACCOUNTING OF THE DEBTOR
10 - 27
Settlement of debt through the transfer of asset
11 - 13
Settlement of debt through the delivery of shares
14
Modifications of the terms and conditions of the debt
15 -19
Combination of several methods of restructuring problematic debt
20 - 21
Related Matters
22 - 25
Disclosures by the Debtor
26 - 27
ACCOUNTING OF THE CREDITOR
28 - 39
Full settlement of the Receivable through the receipt of asset
28 - 29
Modifications of the terms and conditions of the debt
30 - 32
Combination of several method of restructuring problematic debt
33
Related Matters
34 - 36
Replacement or Addition of Debtor
37 - 38
Disclosures by the creditor
39
TRANSITION PERIOD
40
EFFECTIVE DATE
41
Paragraphs printed in bold letters are standard paragraphs which must be read in
the context of the explanatory paragraphs and implementation guidance printed in
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Accounting of the restructuring of problematic debts
SFAS No. 54
normal letters. There is no requirement to apply this standard on items considered
to be immaterial.
INTRODUCTION
Objective
01.

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.

02.

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.

03.

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.

04.

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

example, a debtor may negotiate a
restructuring with a group of creditors, although the debtor has initially sign a debt
Page2
Accounting of the restructuring of problematic debts
SFAS No. 54

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.

Scope
05.
This statement is applicable to the accounting on restructuring of problematic debt.
This statement does not address:
a. The costs of pension benefit already regulated in SFAS No. 24
b. Leasing already regulated in SFAS No. 30
c. Accounting of investment in a specific debt security already regulated in SFAS
No. 50
d. Quasi-reorganization already regulated in SFAS No. 51.
Definitions
06.
Following are definitions of terms used in this statement :
Fair value is the amount that can be used as a basis for the exchange of assets or
the settlement of debt between knowledgeable parties who intend to conduct an
arm\u2019s length transaction.
Market price is the amount that can be obtained from the sale of an investment in
an active market.
Carrying amount is the book value, i.e. the acquisition cost of an asset after
deducting accumulated depreciation.
07.
The restructuring of a debt covers, but is not limited to, one or more of the
following combinations :

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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