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Modification of financial liabilities – IFRS 9

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Modification of financial liabilities – IFRS 9

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by P2-D2.
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  • Author
    Posts
  • September 5, 2017 at 4:48 pm #405702
    mipilg
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    When a, say, debt modification results in a modification of contractual cash flows it is expected (as of Jan 2018 under IFRS9) that the amortised cost of the financial liability is being adjusted for the gain/loss from modification recognized in the P&L directly. The gain/loss being the difference between the amortised cost at the date of modification and the re-estimated contractual cash flows discounted at original effective interest rate.
    Assuming the entity did several refinancing’s of the original debt (resulting in no derecognition but modifications of the contractual cash flows) till to Jan2018 the question is what would be the original effective interest rate for the refinancing following after the first modification?

    The original one from the date when the debt was initiated or the one updated for the gain/loss from the first modification?

    It might have no relevance for the whole period of the debt, but if Jan2018 is in the middle of your debt period it seems to significantly impact the amortised cost at reporting date.

    September 5, 2017 at 8:12 pm #405818
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    The original effective interest rate is the IRR of the cash flows from inception of the debt.

    Thanks

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