Initial Measurement of Notes Payable
- Fair value less any directly attributable transaction costs on the issue of the note
payable.
- However, if the note payable is measured at FVPL, transaction costs are expensed
immediately.
Subsequent Measurement of Notes Payable
- Amortized cost using the effective interest method
- At FVPL if the note was designated irrevocable on issue to be measured at FVPL (FV
Option)
• Interest Expense = Face amount x Nominal interest rate
• Change in FV
o Attributable to credit risk = OCI
o Not credit risk = P/L
Debt Restructuring
- The creditor grants to the debtor concession due to the latter’s financial difficulty.
- Creditor would like to maximize recovery of the investment in debtor.
- Common forms of debt restructuring:
1. Asset swap
2. Equity swap
3. Modification of terms
Asset Swap (IFRS)
- To settle the obligation, the debtor will transfer any asset, whether cash, noncash, or
both.
-The debtor computes gain or loss on the extinguishment as the difference between
carrying amount of the liability, including any accrued interest, and the carrying amount of the
asset transferred.
- Key words = gain or loss on extinguishment
Asset Swap (US GAAP)
- The debtor computes and recognizes the following:
1. Gain or loss on exchange/transfer/disposal
= Difference between FV of asset transferred and CV of asset transferred
2. Gain or loss on debt restructuring
= Difference between CV of liability, including any accrued interest and
FV of asset transferred
- Fair value less any directly attributable transaction costs on the issue of the note
payable.
- However, if the note payable is measured at FVPL, transaction costs are expensed
immediately.
Subsequent Measurement of Notes Payable
- Amortized cost using the effective interest method
- At FVPL if the note was designated irrevocable on issue to be measured at FVPL (FV
Option)
• Interest Expense = Face amount x Nominal interest rate
• Change in FV
o Attributable to credit risk = OCI
o Not credit risk = P/L
Debt Restructuring
- The creditor grants to the debtor concession due to the latter’s financial difficulty.
- Creditor would like to maximize recovery of the investment in debtor.
- Common forms of debt restructuring:
1. Asset swap
2. Equity swap
3. Modification of terms
Asset Swap (IFRS)
- To settle the obligation, the debtor will transfer any asset, whether cash, noncash, or
both.
-The debtor computes gain or loss on the extinguishment as the difference between
carrying amount of the liability, including any accrued interest, and the carrying amount of the
asset transferred.
- Key words = gain or loss on extinguishment
Asset Swap (US GAAP)
- The debtor computes and recognizes the following:
1. Gain or loss on exchange/transfer/disposal
= Difference between FV of asset transferred and CV of asset transferred
2. Gain or loss on debt restructuring
= Difference between CV of liability, including any accrued interest and
FV of asset transferred
