IFRIC Issues Guidance on Extinguishing Financial Liabilities with Equity Instruments
The International Financial Reporting Interpretations Committee (IFRIC) has issued an interpretation that provides guidance on how to account for the extinguishment of a financial liability by the issue of equity instruments. These transactions are often referred to as debt for equity swaps.
IFRIC Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments clarifies the requirements of International Financial Reporting Standards (IFRSs) when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity’s shares or other equity instruments to settle the financial liability fully or partially.
IFRIC 19 clarifies that:
The interpretation is effective for annual periods beginning on or after 1 July 2010 with earlier application permitted.