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 instrument
- Hedge accounting
- IAS 32
- IAS 39
- IFRS 9
- IFRS 9 hedge accounting reforms: a closer reflection of risk management?
- IFRS 15
- Impairment
- Modification
- Modification gain or loss
- Non-substantial modification
- Recognition
- Set-off
- Substantial modification
