Your Ask Joey ™ Answer

For a troubled debt restructuring involving only a modification of terms, what would be compared to the carrying amount of the debt to determine if the debtor should report a gain on restructuring?

When the debtor and creditor cannot agree on a settlement, then the next step would be to modify the terms. From an accounting perspective, you would compare the sum of future cash flows to the carrying value of the debt.

Total future cash cash flows represents the amounts of both principal and accrued interest owed on a debt at the time of its restructuring. This amount will be the continuation of the payable in accordance with the new terms of the deal.

The visual below illustrates how there are two types of modifications:

Back To All Questions

You might also be interested in...