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A debt modification may be effected by:
  • Amending the terms or cash flows of an existing debt instrument
  • Exchanging existing debt for new debt with the same lender
  • Repaying an existing debt obligation and contemporaneously issuing new debt to the same lender; although this may be a legal extinguishment, the transaction may need to be accounted for as a debt modification
When a reporting entity repays an existing debt obligation using the proceeds from a contemporaneous issuance of new debt to a different lender, the transaction should be accounted for as a debt extinguishment. See FG 3.7 for information on debt extinguishment accounting.
The sale of a debt instrument from one investor to another without the involvement of the reporting entity is not a transaction that should be recognized by the reporting entity; transactions among investors involving a reporting entity’s debt instruments do not affect the reporting entity’s accounting.
Figure FG 3-1 illustrates the steps to determine the accounting treatment of a debt modification.
Figure FG 3-1
Analyzing a debt modification
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