Route 102 – One man’s year-long journey……Day 33

  • By Jeremy Williams
  • 04/03/2015

To mark this momentous year for UK GAAP, I'm embarking on a mission to work my way through FRS 102, reading a portion on each working day of 2015 and writing a short blog entry on my thoughts and musings (be they few or many).

Day 33 (4 Mar)

I'm off to lovely York in a short while (better not mention I'm coming from Leicester, or they'll expect me to pitch up with the remains of a past King), so a brief post today.

Yesterday I looked at derecognition of financial assets. Today it's the turn of liabilities - and this is simpler (but may prove more challenging).

A liability is derecognised when it has either been extinguished (paid off, cancelled or expired) or where its terms have been substantially modified or exchanged for an alternative instrument - in which case the new instrument needs to be recognised.

If a difference arises between the derecognition of the liability and any cash paid to settle or transfer it, this gives rise to a gain or loss shown in profit or loss.

So why might this prove challenging? Well, it's reasonably common to see loans renegotiated, and this will now mean that entities (and their auditors) will need to carefully decide whether any such change amounts to a substantial modification. If so, derecognition and new recognition will need to take place. Old GAAP (non-FRS 26) says next to nothing about how to account for debt restructuring other than to recognise any costs for so doing immediately (FRS 4). So in some cases this could lead to revised approaches to such renegotiations.

That's it for now.

P.S. If you missed the last instalment please click here.

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