DEBT RESTRUCTURE Derecognize the asset 3.

-is a situation where the creditor, for economic

or legal reasons related to the debtor’s financial Recognize Gain/Loss on extinguishment of debt

difficulties, grants to the debtor concession (either Equity Swap Equity Swap
stems from an agreement between the creditor and
- transaction whereby a debtor and creditor, may
debtor, or imposed by law or a court) that would not
renegotiate the terms of a financial liability with the
otherwise be granted in a normal business relationship.
result that the liability if fully or partially extinguished
The objective of the creditor in a debt restructuring is to
by the debtor issuing equity instrument to the creditor
make the best of a bad situation or maximize recovery
of investment. Equity swap
TYPES: - issuance of share capital by the debtor to the creditor
in full or partial payment of the obligation.
1. Asset Swap 2. Equity Swap 3. Modification of terms
The equity instrument issued to extinguish a financial
Asset Swap
liability shall be measured at the following amounts in
- transfer by the debtor to the creditor of any asset, the
such as real estate, inventory, receivables and
order of priority;
investment, in full payment of an obligation. -
1.

PFRS 9 treated as a derecognition of a financial liability

or extinguishment of an obligation - FV of equity instrument issued 2.

CA-liab less consideration given=P/L FV of liability extinguished 3.

Do not consider the FMV ignore go to the cost/HC/CA

Dacion en pago accounting Dacion en pago CA of liability extinguished

- arises when a mortgaged property is offered by the
debtor in full settlement of the debt.
Liability xx Add: accrued int. xx Carrying amount of BP xx
Less: 1-2 (xx) Gain on extinguishment of debt xx

CA of liability extinguished used-No gain or Loss CA of

BP xx Less: Par value of shares issued (xx) SP xx
Recognition of gain/loss on the balance of the
obligation including accrued interest and other charges Equity Swap Procedures:
Obligation including interest xx CA of property 1.
mortgaged xx Gain (Loss) on extinguishment xx(xx)

Asset Swap and Dacion en pago Procedures:

Derecognize the obligation 2.
1.

Recognized the issuance of shares 3.

Derecognize the obligation 2.

Recognize gain/loss on extinguishment of debt 4.

Recognize share premium CV-liability FMV-shares Par
Shares

Gain/Loss

Share premium

Order of priority 1.

FMV- shares 2.

FMV- Liab 3.

CA- Liab