IFRIC 19 on liability-equity swaps

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27 Nov 2009

The International Financial Reporting Interpretations Committee has issued IFRIC Interpretation 19 'Extinguishing Liabilities with Equity Instruments' following its approval by the IASB.

The Interpretation applies when a debtor extinguishes a liability fully or partly by issuing equity instruments to the creditor. IFRIC's key conclusions in IFRIC 19:
  • If a debtor issues equity instruments to a creditor to extinguish all or part of a financial liability, those equity instruments are 'consideration paid' in accordance with IAS 39.41. Accordingly, the debtor should derecognise the financial liability fully or partly.
  • The debtor should measure the equity instruments issued to the creditor at fair value, unless fair value is not reliably determinable, in which case the equity instruments issued are measured at the fair value of the liability extinguished.
  • If only part of a liability is extinguished, the debtor must determine whether any part of the consideration paid relates to modification of the terms of the remaining liability. If it does, the debtor must allocate the fair value of the consideration paid between the liability extinguished and the liability retained.
  • The debtor recognises in profit or loss the difference between the carrying amount of the financial liability (or part) extinguished and the measurement of the equity instruments issued.
  • When only part of the liability is extinguished, the debtor must determine whether the terms of the remaining debt have been substantially modified (taking into account any portion of the consideration paid that was allocated to the remaining debt). If there has been a substantial modification, the debtor should account for an extinguishment of the old remaining liability and the recognition of a new liability (see IAS 39.40).
IFRIC 19 must be applied in annual periods beginning on or after 1 July 2010. Earlier application is permitted. It would be applied retrospectively from the beginning of the earliest comparative period presented. Click for:


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