The Malaysian Accounting Standards Board (MASB) has issued drafts of IC Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments and Prepayments of a Minimum Funding Requirement (Amendments to IC Interpretation 14).
These Draft Pronouncements are word for word of those issued by the International Accounting Standards Board (IASB), i.e. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments and Prepayments of a Minimum Funding Requirement (Amendments to IFRIC 14) respectively.
IC Interpretation 19
IC Interpretation 19 addresses the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor to extinguish all or part of the financial liability. Accounting by a creditor is not addressed in this pronouncement.
IC Interpretation 19 proposes that the equity instruments issued to be measured at their fair value. If their fair value cannot be reliably measured, the equity instruments should be measured to reflect the fair value of the financial liability extinguished. Any difference between the carrying amount of the financial liability extinguished and the initial measurement amount of the equity instruments issued is included in the entity’s profit or loss for the period.
The Draft Interpretation may impact entities that have previously recognised the equity instruments issued in a debt for equity swap at the carrying amount of the financial liability. It will also apply to partial extinguishments of the financial liability by the issue of equity instruments to the creditor and the modification of the terms of the financial liability that remains outstanding.
Prepayments of a Minimum Funding Requirement
Meanwhile, the proposed amendments to IC Interpretation 14 apply in the limited circumstances when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover those requirements. The amendment permits such an entity to treat the benefit of such early payment as an asset.
The exposure period expires on 15 July 2010.