Ministry of Finance, Enterprise Accounting Guidelines - Debt Restructuring (Revised)

Issued: January 18 2001
Effective: January 1 2001
Applicability: For the purposes of these Guidelines, "Debt restructuring" means the modification of the terms of a debt as agreed by the creditor with the debtor or pursuant to a court judgment (Section Three). These Guidelines have retrospective effect on prior debt restructurings treated with different accounting methods (Section 16).

Main contents: According to the Guidelines, if a debt is discharged by an amount of cash less than the book value of the debt, the debtor shall recognize the difference between the book value of the debt and the amount of cash paid as capital common reserves (Section Four). The creditor shall treat such difference as a current loss (Section Nine). If the debt is discharged with a non-cash asset, the debtor shall recognize the difference between the book value of the debt and the fair value of the non-cash asset plus related taxes and charges as capital common reserves or current loss (Section Five). The creditor shall credit the received asset on the basis of the book value of the debt (Section Ten). If the debt is discharged by conversion into equity, the difference between the book value of the debt and the amount of the equity shall be recognized as capital common reserves (Section Six). The creditor shall credit the received equity on the basis of the book value of the debt (Section 11). If the other terms of the debt are modified to result in a future payable amount less than the book value of the debt, the book value of the debt shall be reduced accordingly and the reduction shall be treated as capital common reserves (Section 7). The creditor shall also reduce the book value of the debt and the reduction shall be treated as a current loss (Section 12). The Guidelines also provide for the accounting treatment in respect of debt restructuring involving a combination of the above methods (Sections 8 and 12).

clp reference:3100/01.01.18(5)promulgated:2001-01-01effective:2001-01-18