Question

Question: Under what circumstances would a transaction be recorded as a troubled-debt restructuring by only one of the two parties to the transaction?

Short answer

Answer

A transaction related to troubled-debt restructuring is listed by the debtor only if the value for which debt is settled is less than its accounting value on the books of the debtor but is equivalent to or higher than the accounting value on the books of the creditor.

Step-by-step solution

Meaning of troubled-debt restructuring

Trouble-debt restructuring refers to the debt restructuring wherein a creditor, for monetary or statutory reasons associated with a debtor’s economic crisis, permits allowances to the debtor that it would not have else regarded.

Conditions for recording a transaction as a troubled-debt restructuring

Situations under which a transaction as a troubled debt restructuring is recorded include:

• Debtor lists the transaction as a troubled-debt restructuring provided the value for which the debt is settled is lower than its asset value on the debtor books but is greater or similar to the asset value on the creditor books.
• Moreover, the condition created with the help of discounted as compared to non-discounted cash flows by debtors and creditors, this circumstance can take place when a creditor or debtor has been replaced with one of the groups to the actual transaction.