Restructured or Impaired Debt
When a borrower encounters financial distress, creditors may agree to accept assets as payment for the debt or to restructure (modify the terms) of the original agreement. If the debt is extinguished, the debtor and creditor must recognize gains or losses equal to the difference between the carrying amount of the debt and the amount actually given as repayment. When it is restructured, however, the accounting guidelines frown upon the borrower recognizing a gain due to its own financial distress. Instead, no gain can be recognized as long as the gross cash flows (undiscounted) exceed the original amount borrowed.
For more information, see all articles on: Accounting See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
