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When a reporting entity issues debt denominated in a currency other than its functional currency, it should initially be measured using the exchange rate in effect at the issuance date. Since it is a monetary liability, the debt balance should be measured in the reporting entity’s functional currency each reporting date using the exchange rate in effect at the reporting date. Debt premium, discount, and debt issuance costs are considered part of the carrying amount of the debt and should be included in the balance measured in the reporting entity’s functional currency. Measuring the premium, discount, and issuance costs at current exchange rates ensures that a level effective yield in the foreign currency is maintained. The effects of the foreign exchange rate movements are reported currently, which also ensures that the foreign exchange movements do not affect the gain or loss amount upon maturity, or in the event the debt is extinguished early.
The application of this guidance may not be intuitive relative to debt issuance costs, which are considered monetary even though they will not be settled in a foreign currency on a future date. This is because debt issuance costs are considered part of the carrying amount of the debt. Debt issuance costs incurred in a currency other than the currency of the debt should be measured in the currency of the debt using the exchange rate at the date the debt is issued.
While ASC 830 does not specifically address the rates at which amortization of the discounts or premiums should be reported in the income statement, we believe that, as the amortization is occurring throughout the period, it is acceptable to record amortization for a period using the average spot rate for that period.

4.10.1 Debt modification

As described in FG 3.4, if a debt instrument is modified, changes that result in more than a 10% change in cash flows are treated as an extinguishment and issuance of new debt. If a debt instrument is modified such that the currency in which the debt is denominated changes, the change in currency should be included in the cash flows as part of the 10% test. To convert the cash flows on the new debt into the currency of the original debt, we believe there are two acceptable methods: (1) use the spot rate in effect at the debt modification date, or (2) use the forward rates corresponding to the payment date of each cash flow (i.e., interest payment and principal). Use of the modification date spot rate captures the impact of changing to a currency that is substantially different from the original currency; use of forward rates neutralizes those differences.
When a foreign currency denominated line of credit or revolving debt arrangement is modified, the exchange rate on the date the arrangement is modified should be used to compare the borrowing capacities to determine whether the transaction should be accounted for as a modification or extinguishment. See FG 3.5 for further information on a modification of lines of credit and revolving debt arrangements.
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