DEBT RESTRUCTURE

Equity Swap
-is a situation where the creditor, for economic
or legal reasons related to the debtors financial
Equity Swap- transaction whereby a debtor and
difficulties, grants to the debtor concession
creditor, may renegotiate the terms of a
(either stems from an agreement between the
financial liability with the result that the liability if
creditor and debtor, or imposed by law or a
fully or partially extinguished by the debtor
court) that would not otherwise be granted in a
issuing equity instrument to the creditor
normal business relationship.

The objective of the creditor in a debt Equity swap- issuance of share capital by the
restructuring is to make the best of a bad debtor to the creditor in full or partial payment
situation or maximize recovery of investment. of the obligation.

TYPES: The equity instrument issued to extinguish a

1. Asset Swap financial liability shall be measured at the
2. Equity Swap following amounts in the order of priority;
3. Modification of terms 1. FV of equity instrument issued
2. FV of liability extinguished
Asset Swap- transfer by the debtor to the 3. CA of liability extinguished
creditor of any asset, such as real estate,
inventory, receivables and investment, in full Liability xx
payment of an obligation. Add: accrued int. xx
- PFRS 9 treated as a derecognition of a Carrying amount of BP xx
financial liability or extinguishment of an Less: 1-2 (xx)
obligation Gain on extinguishment of debt xx
- CA-liab less consideration given=P/L
CA of liability extinguished used-No gain or Loss
Do not consider the FMV ignore go to the
cost/HC/CA CA of BP xx
Dacion en pago accounting Less: Par value of shares issued (xx)
SP xx
Dacion en pago- arises when a mortgaged
property is offered by the debtor in full Equity Swap
settlement of the debt. Procedures:
1. Derecognize the obligation
Recognition of gain/loss on the balance
2. Recognized the issuance of shares
of the obligation including accrued
3. Recognize gain/loss on
interest and other charges
extinguishment of debt
Obligation including interest xx 4. Recognize share premium
CA of property mortgaged xx
Gain (Loss) on extinguishment xx(xx) CV-liability Gain/Loss
FMV-shares
Asset Swap and Dacion en pago Par Shares Share premium
Procedures:
1. Derecognize the obligation
2. Derecognize the asset Order of priority
3. Recognize Gain/Loss on extinguishment
1. FMV- shares
of debt
2. FMV- Liab
3. CA- Liab
Modification of terms

1. Substantial modification of terms

Gain/Loss on extinguishment is at least
10% or more than 10% of the old financial
liability
Accounted as:
a. extinguishment of the old financial
liability
b. recognition of new financial liability

PV of principal xx
PV of interest payment xx
PV of new liability xx
Face Value of new liability (xx)
Discount/Premium on liability xx

Liability-old xx
Add: accrued int. payable xx
CA of old liability xx
PV of new liability (xx)
Gain on extinguishment of debt xx

2. No substantial modification
Gain on extinguishment is less than 10%
of old liability
Gain is not recognized because the
modification is not an extinguishment if
the old liability
Old liability is continued with modified
interest charges. New Effective rate must
be computed.