Question

What is meant by “accounting symmetry” between the entries recorded by the debtor and creditor in a troubled-debt restructuring involving a modification of terms? In what ways is the accounting for troubled-debt restructurings non-symmetrical?

Short answer

Accounting symmetry relatesto arelationship among the entries listed by each participant.

Accounting for troubled-debt restructurings is non-symmetrical because when the creditor records loss, the debtor does not record at all.

Step-by-step solution

Meaning of troubled-Debt Restructuring

A troubled-debt restructuring takes place when a borrower permits allowances that it would have generally regarded because of the economic crisis of the debtor.

Accounting symmetry

“Accounting symmetry” is a type of agreement among the entries listed by both the debtorandthe creditor in a troubled-debt restructuring. That is, a loss of one party leads to the gain of the other by the same amount.

Ways that define that the accounting for troubled-debt restructuring is non-symmetrical

Troubled-debt restructurings are non-symmetrical as creditors estimate their losses with the help of discounted present value of future cash flows, whereas debtors compute their gains with the help of non-discounted cash flows.