The International Financial Reporting Interpretations Committee (IFRIC) this week published forpublic comment a draft Interpretation, IFRIC D25 Extinguishing Financial Liabilities with Equity Instruments. The proposal is open for public comment until 5 October 2009.
In the current environment, some entities are renegotiating the terms of financial liabilities with their creditors. In some circumstances, the creditor agrees to accept an entity's shares or other equity instruments to settle the financial liability fully or partially. The IFRIC was asked for guidance on how an entity should account for such transactions in accordance with IAS 39 Financial Instruments: Recognition and Measurement and IAS 32 Financial Instruments: Presentation. IFRIC D25 proposes that:
- the entity's equity instruments are part of any 'consideration paid' to extinguish the financial liability;
- the equity instruments are measured at either their fair value or the fair value of the financial liability extinguished, whichever is more reliably determinable; and
- any difference between the carrying amount of the financial liability extinguished and the initial measurement amount of these equity instruments is included in the entity's profit or loss for the period.