@jason, these are my notes:
Trouble Debt Restructuring:
-When a debtor cannot pay a debt as it comes due, the debt is considered a troubled debt. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that BOTH of the following exist:
1. The restructuring constitutes a concession.
2. The debtor is experiencing financial difficulties.
Three ways to restructure the debt:
1. Transfer of Property
-Debtor:
-Extraordinary or Ordinary Gain: Different between the CV of the debt and the FMV of the asset giving up. It’s classified as extraordinary if unusual and infrequent and classified as ordinary if it fails to meet these two conditions.
-Ordinary Gain/Loss: Difference between FMV of asset giving up and BV of asset giving up.
-Transfer Gain/Loss: Difference between CV of debt and FMV of debt
-Restructuring Gain: Excess of CV of debt over FMV of transferred property
-Creditor: Records new asset at FMV and recognizes an Ordinary Loss.
2. Equity interest in the debtor is issued
-Equity is recorded as if issued for FMV
-Gain for difference between the CV of the debt and the FMV of the equity (or extraordinary)
3. Modification of Terms
-Reduction of the interest rate
-Extension of the maturity date
-Reduction of the face amount of the debt and accrued interest
-If future payments < obligation (carrying amount):
-Gain to Debtor (extraordinary if unusual or infrequent)
-Ordinary Loss to Creditor
-Interest revenue is calculated by using the effective interest method.
-If future payments > obligation (carrying amount):
-No gain or loss
-Considered an adjustment to the interest rate
AUD: 84
REG: 84
BEC: 79
FAR: 83
.