Scribd
Upload
1K views1 page

LEC104-C: Debt Restructuring Problem 1: Asset Swap (IFRS Vs US GAAP)

This document contains three debt restructuring problems and one compound financial instrument problem. Problem 1 involves an asset swap under IFRS and US GAAP. Problem 2 involves an equity swap. Problem 3 modifies the terms of a note payable. The compound financial instrument problem involves bonds issued with detachable warrants.

Uploaded by

Miles Santos
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
1K views1 page

LEC104-C: Debt Restructuring Problem 1: Asset Swap (IFRS Vs US GAAP)

This document contains three debt restructuring problems and one compound financial instrument problem. Problem 1 involves an asset swap under IFRS and US GAAP. Problem 2 involves an equity swap. Problem 3 modifies the terms of a note payable. The compound financial instrument problem involves bonds issued with detachable warrants.

Uploaded by

Miles Santos
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 1

ACC104: Intermediate Accounting 2 February 8, 2020

M. Santos, CPA

Debt Restructuring

Problem 1: Asset Swap (IFRS vs US GAAP)


Versatile Company, after having experienced financial difficulties in 2020, negotiated with a major creditor and
arrived at an agreement to restructure a note payable on December 31, 2020.

The creditor was owed principal of 3,600,000 and interest of 400,000 but agreed to accept equipment worth
700,000 and note receivable from a Versatile Company’s customer with a carrying amount of 2,700,000.

The equipment had an original cost of 900,000 and accumulated depreciation of 300,000.

1. Under IFRS9, what amount should be recognized as gain from debt extinguishment on December 31,
2020?
2. Under US GAAP, what amount should be recognized as gain from debt extinguishment on December 31,
2020?
3. Under US GAAP, what amount should be recognized as gain or loss on exchange on December 31,
2020?

Problem 2: Equity Swap


Seal Company is experiencing financial difficulty and is negotiating debt restructuring with its creditor to
relieve its financial stress. Seal has a 2,500,000 note payable to United Bank.

The bank accepted an equity interest in Seal Company on the form of 200,000 ordinary shares quoted at 12
per share. The par value is 10 per share.

1. What amount should be recognized as gain from debt extinguishment as a result of equity swap?
2. What amount should be recognized as share premium from the issuance of shares?
3. If the shares have no fair value, what amount should be recognized as gain on extinguishment?

Problem 3: Modification of Terms


Granada Company had an overdue 8% note payable to First Bank at 8,000,000 and accrued interest of
640,000.

As a result of a restructuring agreement on January 1, 2020, First Bank agreed to the following provisions:
 The principal obligation is reduced to 7,000,000.
 The accrued interest of 640,000 is forgiven.
 The date of maturity is extended to December 31, 2020.
 Annual interest of 10% is to be paid for 4 years every December 31.

1. What is the gain on extinguishment of debt to be recognized for 2020?


2. What is the interest expense to be recognized 2020?

Compound Financial Instrument


On December 31, 2020, Moses Company issued 5,000,000 face amount, 5-year bonds at 109. Each 1,000
bond was issued with 50 detachable warrants, each of which is entitled the bondholder to purchase one
ordinary share of 5 par at 25. Immediately after issuance, the market value of each warrant is 5.

The stated interest rate on the bonds is 11% payable annually every December 31. However, the prevailing
market rate of interest for similar bonds without warrants is 12%. Round off present value factors to nearest
hundredths.

1. What is the carrying amount of the bonds payable on December 31, 2020?
2. On December 31, 2020, what amount should be recorded as discount or premium on bonds payable?
3. What is the share premium if all of the warrants are exercised?

1
LEC104-C

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy