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TABLE OF CONTENTS CHAPTER I GENERAL PROVISIONS CHAPTER II ACCOUNTING TREATMENT OF DEBTORS CHAPTER III ACCOUNTING TREATMENTS OF THE CREDITOR CHAPTER IV DISCLOSURE CHAPTER I GENERAL PROVISIONS Article 1. For the purpose of regulating the recognition and measurement of debt restructuring, and disclosure of the relevant information, these Standards are formulated in accordance with the Accounting Standards for Enterprises-Basic Standards. Article 2. The term "debt restructuring" refers to an event in which the terms of a debt are modified as a result of a mutual agreement between a debtor or a creditor or a judgment by a court because the debtor has a financial problem. Article 3. The methods of debt restructuring mainly include: (1) The settlement of a debt by an asset; (2) The conversion of a debt into capital; (3) The modification of other terms of a debt such as deduction of principal or interest of a debt, excluding the two methods as listed above; (4) A combination of the three methods listed above. CHAPTER II ACCOUNTING TREATMENT OF DEBTORS Article 4. When a debtor settles a debt by cash, it shall record the difference between the carrying amount of the debt to be restructured and the actual cash payment in the current profits and losses. Article 5. When a debtor settles a debt by a non-cash asset, it shall record the difference between the carrying amount of the debt to be restructured and the fair value of the non-cash asset transferred in the current profits and losses. The difference between fair value and the carrying amount of the non-cash asset transferred shall be recorded in the current profits and losses. Article 6. When a debt is converted into capital, the debtor shall recognize the total par value of shares, to which the creditor becomes entitled for waivering the credit, as stock capital (or paid-in capital) and shall recognize the total amount of the fair value of the shares and the stock capital (or paid-in capital) as additional paid-in capital. The difference between the carrying amount of the debt to be restructured and total amount of the fair value of the shares shall be recorded in the current profits and losses. Article 7. Where other terms of a debt are modified, the debtor shall treat the post-modification fair value of the debt as the entry value of the restructured debt, and shall record the carrying amount of the debt to be restructured and the entry value of the restructured debt in the current profits and losses. If the post-modification terms of a debt involves any contingent payment and if the contingent payment meets the conditions for the recognition of expected liabilities as mentioned in the Accounting Standards for Enterprises No. 13-Contingencies, the debtor shall recognize the contingent amount payable as expected liability, and shall record the carrying amount of the debt to be restructured and the aggregate amount of the entry value of the restructured debt and the expected amount of liability in the current profits and losses. The term "contingent amount payable" refers to the payable amount which depends on the occurrence of a future event and which is uncertain. Article 8. Where a debt restructuring is conducted by a combination of the settlement of a debt by assets, the settlement of a debt by non-cash asset, the conversion of a debt into capital, and the modification of other terms of a debt, the debtor shall offset, one by one, the cash paid, the fair value of the non-cash asset transferred, and the fair value of the shares to which the creditor becomes entitled, against the carrying amount of the debt to be restructured, then treat it in pursuance of Article 7 of these Standards. CHAPTER III ACCOUNTING TREATMENTS OF THE CREDITOR Article 9. When a debt is settled by cash, the creditor shall record the difference between the book balance of the debt to be restructured and the cash received in the current profits and losses. If it has made provision for the impairment of the credit, it shall first offset the said difference against the impairment provision, then record the shortfall in the current profits and losses. Article 10. When a debt is settled by non-cash asset, the creditor shall recognize the fair value of the non-cash asset received as the entry value and shall treat the difference between the book balance of the debt to be restructured and the fair value of the non-cash asset received in accordance with Article 9 of these Standards. Article 11. When a debt is converted into capital, the creditor shall recognize the fair value of the shares to which it becomes entitled as investment to the debtor and shall treat the difference between the book balance of the debt to be restructured and the fair value of the shares pursuant to Article 9 of these Standards. Article 12. When other terms of a debt are modified, the creditor shall recognize the fair value of the credit after the modification of other terms of the debt as the carrying amount of the restructured debt and shall treat the book balance of the debt to be restructured and the carrying amount of the restructured debt in accordance with Article 9 of these Standards. If the post-modification terms of the debt involve any contingent amount receivable, the creditor should not recognize the contingent amount receivable, nor may it record it in the carrying amount of the restructured debt. The term "contingent amount receivable" refers to the receivable amount which depends on the occurrence of a future event and which is uncertain. Article 13. Where a debt restructuring is conducted by a combination of the settlement of a debt by assets, the settlement of a debt by non-cash asset, the conversion of a debt into capital and the modification of other terms of a debt, the creditor shall offset, one by one, the cash received, the fair value of the non-cash asset received, and the fair value of the shares to which the creditor becomes entitled, against the book balance of the debt to be restructured, then treat it in pursuance of Article 12 of these Standards. CHAPTER IV DISCLOSURE Article 14. The debtor shall, in its notes, disclose the following information related to debt restructuring: (1) The method of debt restructuring; (2) The total amount of the income of debt restructuring, which is recognized; (3)The increment of stock capital (or pain-in capital) as a result of debt-to-capital conversion; (4) The contingent amount payable; and (5) The methods and basis for the determination of the fair value of the non-cash asset transferred in a debt restructuring, the fair value of the shares converted by the debt, and the fair value of the debt after the modification of other terms of the debt. Article 15. A creditor shall, in its notes, disclose the following information related to debt restructuring: (1) The method of debt restructuring; (2) The total amount of the loss of debt restructuring, which is recognized; (3) The increment of investment and the proportion to the total shares of the debtor as a result of credit-to-share conversion; (4) The contingent amount receivable; and (5) The methods and basis for the determination of the fair value of the non-cash asset received in a debt restructuring, the fair value of the shares converted by the credit, and the fair value of the credit after the modification of other terms of the debt. |
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