Professional Documents
Culture Documents
1. Asset Swap
Carrying amount of assets x
Carrying amount of liability (x)
Gain/Loss on Extinguishment x
Gain/Loss on Modification / Carrying amount, old liability + AI(if recor x% apply 10% Test
Fee/Modification Cost
1. substantial (10% and above) - part of the Gain/Loss on Extinguishment (if Gain - deduct, if Loss - add)*
2. not substantial (below 10%) - part of the carrying amount of the new financial liability (deduction)
Substantial Modification
- Old FL derecognized, then recognized the New FL@FV
FL@FV x
CA, Old FL (x)
Gain or Loss on Extinguishment (x)/x
Modification Cost* x
Gain or Loss on Extinguishment (x)/x
1A
Carrying amount, NP, 12/31/2014 5000000
Accrued Interest Payable 600000
Total CA, Liabilty 5600000
US GAAP:
FV of Land 4500000
CA, Liability -5600000
Gain on Extinguishment -1100000
2B
CA, real estate 1000000
CA, Liability -1500000
Gain on extinguishment -500000
3C
FV of shares (12*200000sh) 2400000
PV of shares -2000000
APIC 400000
4
10% Test
CA, old Liability + AI (if recorded) 5500000
Recoverable amount (PV@10%+MC)
Principal 4000000 0.75 3000000
Interest 320000 2.49 796800
3796800
5
6
7A
CA, Cash 4100000
CA, Liability -5750000
Gain on Extinguishment -1650000
8D
CA, Asset (530000 - 130000) 400000
CA, Liability -660000
Gain on Extinguishment -260000
Problem 1
1/1/2023 - Date of Restructuring
1/1/2023
DR: Notes Payable - old 600000
DR: AIP 60000
DR: Discount on NP 74282
CR: Notes Payable - new 400000
CR: Gain on Extinguishment 299282
CR: Cash 35000
@14%
Principal 400000 0.675 270000
Interest 24000 2.3216 55718
FV of new NP, 1/1/2023 325718 Q2
Face Value 400000
Discount on NP 74282
New EIR@14%
Carrying amount, 1/1/2023 325718
EIR 14%
Interest Expense - 2023 45600.52 Q3
Carrying amount, NP, 12/31/2023 347318.52 Q4
Problem 2
1/1/2023 - Date of Restructuring
@10%
Principal 500000 0.683 341500
Interest 70000 3.1699 221893
PV of NP 563393
Modification cost -29000
Adjusted NP, 1/1/2023 534393 11.75%
*recalculate the new EIR
@11%
Principal 500000 0.6587 329350
Interest 70000 3.1024 217168
PV of NP 546518
@12%
Principal 500000 0.6355 317750
Interest 70000 3.0373 212611
PV of NP 530361
Rate 1%
PV 16157
11% + 1%(12125/16157) 0.117504487 11.75%
12% - 1%(4032/16157) 0.117504487 11.75%
1/1/2023
DR: AIP 50000
DR: Loss on Modification 13393
CR: Premium on NP 34393
CR: Cash 29000