188体育

This guidance is applicable to certain events that take place on or after 1聽January 2015.

CTA09/323A

The terms 鈥榤odification鈥� and 鈥榬eplacement鈥� refer to the accountancy treatment of a 鈥榮ubstantial modification鈥� of the terms of the debt which gives rise to a credit. There is no definition of a 鈥榮ubstantial鈥� modification in IAS 39, IFRS9 or FRS102, other than meaning 鈥榤ore than insignificant鈥�. Examples of cases where credits may be recognised in the accounts are:

• where the debtor鈥檚 contractual terms are eased 鈥� in effect, an accounting profit from having a less onerous obligation to meet;
• where the modification is substantial, as explained further below.

The accounting treatment under IAS39, IFRS 9 or FRS 102 is to derecognise the existing debt and recognise a new debt instrument based on the new terms. Even though the instrument is accounted for on an amortised cost basis of accounting, the 鈥榥ew鈥� instrument is measured on initial recognition at its fair value.

The difference between the carrying value of the 鈥榦ld鈥� instrument and the fair value of the 鈥榥ew鈥� instrument will be recognised as an item in profit or loss.聽 Typically, in the case of distressed debt, this will be a profit of the debtor company comprising

• the relaxation of conditions under the instrument; and
• the deterioration in the creditworthiness of the company.聽

This means that the fair value of the instrument in the books of the creditor is worth less than it was originally. In other words, a larger discount factor is used to calculate the present value of the future obligations under the revised instrument.