In accordance with the "Basic Standards of Enterprise Accounting," the Ministry of Finance issued the revised CAS No. 12 — Debt Restructuring on 2019/5/16, effective as of 2019/6/17.
1. Overview of Guidelines
Debt restructuring is a transaction in which the creditor and debtor agree, or a court rules, to renegotiate the timing, amount, or method of debt repayment without changing the counterparty.
Debt restructuring methods
- • Debtor settles debt with assets
- • Conversion of debt into equity instruments
- • Modify other terms of the debt and creditor rights by adjusting the principal amount, changing interest rates, or altering repayment terms.
- • Combination of the above methods
II. Accounting Treatment by Creditors
For debt restructurings settled by transferring assets to satisfy debt, creditors shall initially measure assets received other than financial assets at cost according to the following principles:
Inventory
Includes the fair value of waived receivables and other directly attributable costs incurred to bring the asset to its current location and condition, such as taxes, transportation fees, handling charges, and insurance premiums.
Fixed Assets
Includes the fair value of waived debt and other directly attributable costs incurred before the asset is ready for its intended use, such as taxes, transportation fees, handling charges, installation costs, and professional service fees.
Intangible Assets
Includes the fair value of debt extinguished and other directly attributable costs, such as taxes, incurred to bring the asset to its intended use.
Revenue Recognition:The difference between the fair value and carrying amount of a waived receivable shall be recognized in profit or loss for the current period.
III. Accounting Treatment by the Debtor
Settlement of debts with assets
The difference between the carrying amount of the debt settled and the carrying amount of the assets transferred is recognized in current period earnings.
Convert debt into equity instruments
Upon initial recognition of equity instruments by the debtor, measure them at their fair value. If the fair value cannot be reliably measured, measure them at the fair value of the debt settled. The difference between the carrying amount of the debt settled and the recognized amount of the equity instruments shall be recognized in profit or loss for the period.
Edit other terms
Debtors shall recognize and measure restructured debt in accordance with the requirements of IFRS 9 Financial Instruments.
4. Disclosure Requirements
Creditor Disclosure
- • Disclose the carrying amount of creditor's rights and gains or losses related to debt restructuring separately by group, based on the method of debt restructuring.
- Increase in equity investment in associates or joint ventures resulting from debt restructuring
Debtor Disclosure
- • Disclose the carrying amount of debt and gains or losses related to debt restructuring by group, based on the debt restructuring method.
- Increase in share capital and other equity resulting from debt restructuring
Regulatory Document Attachment
CAS No. 12 — Debt Restructuring (PDF)