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IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

Published November 2009. Effective for annual periods beginning on or after 1 July 2010.

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IFRIC 19 provides accounting guidance where a financial liability is extinguished by the issue of equity instruments, often referred to as a debt for equity swap. The Interpretation provides guidance for the accounting treatment to be applied by the issuer of the equities (the debtor).

In this situation the equity instrument issued is measured at fair value; where fair value can’t be measured reliably, measurement should reflect the fair value of the liability extinguished. Any difference between the financial liability extinguished and the measurement of the equity instruments is recognised in profit or loss.

Where the issue of an equity instrument only part extinguishes the financial liability, the debtor must consider whether any consideration relates to the modification of the remaining liability. If it does, the fair value of the equity instrument issued must be allocated between the extinguished liability and the remaining liability.

If the remaining liability is substantially modified, then it must be derecognised and a new liability recognised.

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