Extinguishment

1. Financial reporting - financial liabilities - International Financial Reporting Standards (IFRS) - IFRS 9.

Under IFRS 9 the extinguishment of a financial liability means that the obligation is discharged, cancelled or has expired.

Under paragraph 3.3.2 of IFRS 9 the following changes are accounted for as an extinguishment of the original financial liability:

(1) An exchange between an existing borrower and lender of debt instruments with substantially different terms; or

(2) A substantial modification of the terms of an existing financial liability or a part of it.

Under paragraph 3.3.3 of IFRS 9, the difference between the carrying amount of a financial liability (or part of a financial liability) extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.

This difference may be a modification gain or loss.

Accounting and tax surprises under IFRS 9

"Corporate borrowers often need to renegotiate their existing loan liabilities, and in many companies this responsibility will fall on the treasurer.

Although treasurers may not necessarily be accounting experts, they still need to carefully consider the potential accounting impacts when renegotiating loan terms.

Under IFRS 9: Financial Instruments, loan modifications can trigger gains and losses for financial reporting purposes and may even have tax implications."

Renegotiating a loan? Get the accounting right - Kern Roberts, managing director, global accounting practice lead Chatham Financial.

2. Set-off.

A situation in which a claim or demand is set against an opposite claim or demand, reducing or eliminating the first demand.

See also

• Derecognition
• Derivative instrument
• Fair Value Adjustment
• Financial asset
• Financial instrument
• Financial liability
• Hedge accounting
• IAS 32
• IAS 39
• IFRS 9
• IFRS 9 hedge accounting reforms: a closer reflection of risk management?
• IFRS 15
• Impairment
• International Financial Reporting Standards (IFRS)
• Modification
• Modification gain or loss
• Non-substantial modification
• Recognition
• Set-off
• Substantial modification

Other resources

• IFRS 9 summary - IAS Plus
• IFRS 9 full text - IFRS webpage
• Renegotiating a loan? Get the accounting right - Kern Roberts, managing director, global accounting practice lead Chatham Financial