Contents

IFRIC INTERPRETATION 19 EXTINGUISHING FINANCIAL LIABILITIES WITH EQUITY INSTRUMENTS
REFERENCES
BACKGROUND1
SCOPE2
ISSUES4
CONSENSUS5
EFFECTIVE DATE AND TRANSITION12
APPENDIX
Amendment to IFRS 1 First‑time Adoption of International Financial Reporting Standards
FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION
BASIS FOR CONCLUSIONS

IFRIC Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments (IFRIC 19) is set out in paragraphs 1⁠–⁠17 and the Appendix. IFRIC 19 is accompanied by a Basis for Conclusions. The scope and authority of Interpretations are set out in the Preface to IFRS Standards.

IFRIC Interpretation 19Extinguishing Financial Liabilities with Equity Instruments

Background

1

A debtor and creditor might renegotiate the terms of a financial liability [Refer:IAS 32 paragraph 11 (definition of financial liability)] with the result that the debtor extinguishes the liability fully or partially by issuing equity instruments [Refer:IAS 32 paragraph 11 (definition of equity instrument)] to the creditor. These transactions are sometimes referred to as ‘debt for equity swaps’. The IFRIC has received requests for guidance on the accounting for such transactions.

[Refer:Basis for Conclusions paragraphs BC2⁠–⁠BC4]

Scope

2

This Interpretation 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 of the entity to extinguish all or part of the financial liability. It does not address the accounting by the creditor. [Refer:Basis for Conclusions paragraph BC6]

3

An entity shall not apply this Interpretation to transactions in situations where:

(a)

the creditor is also a direct or indirect shareholder and is acting in its capacity as a direct or indirect existing shareholder. [Refer:Basis for Conclusions paragraph BC7]

(b)

the creditor and the entity are controlled by the same party or parties before and after the transaction and the substance of the transaction includes an equity distribution by, or contribution to, the entity. [Refer:Basis for Conclusions paragraph BC8]

(c)

extinguishing the financial liability by issuing equity shares is in accordance with the original terms of the financial liability. [Refer:Basis for Conclusions paragraph BC9]

Issues

4

This Interpretation addresses the following issues:

(a)

Are an entity’s equity instruments issued to extinguish all or part of a financial liability ‘consideration paid’ in accordance with paragraph 3.3.3 of IFRS 9?

[Refer:paragraph 5]

(b)

How should an entity initially measure the equity instruments issued to extinguish such a financial liability?

[Refer:paragraphs 6⁠–⁠8]

(c)

How should an entity account for any difference between the carrying amount of the financial liability extinguished and the initial measurement amount of the equity instruments issued?

Consensus

5

The issue of an entity’s equity instruments to a creditor to extinguish all or part of a financial liability is consideration paid in accordance with paragraph 3.3.3 of IFRS 9. An entity shall remove a financial liability (or part of a financial liability) from its statement of financial position when, and only when, it is extinguished in accordance with paragraph 3.3.1 of IFRS 9.

6

When equity instruments issued to a creditor to extinguish all or part of a financial liability are recognised initially, an entity shall measure them at the fair value of the equity instruments issued, unless that fair value cannot be reliably measured.

[Refer:Basis for Conclusions paragraphs BC15⁠–⁠BC21]

7

If the fair value of the equity instruments issued cannot be reliably measured then the equity instruments shall be measured to reflect the fair value of the financial liability extinguished. [Refer:Basis for Conclusions paragraphs BC20 and BC21] In measuring the fair value of a financial liability extinguished that includes a demand feature (eg a demand deposit), paragraph 47 of IFRS 13 is not applied. [Refer:Basis for Conclusions paragraph BC22]

8

If only part of the financial liability is extinguished, the entity shall assess whether some of the consideration paid relates to a modification of the terms of the liability that remains outstanding. If part of the consideration paid does relate to a modification of the terms of the remaining part of the liability, the entity shall allocate the consideration paid between the part of the liability extinguished and the part of the liability that remains outstanding. The entity shall consider all relevant facts and circumstances relating to the transaction in making this allocation.

[Refer:Basis for Conclusions paragraphs BC28⁠–⁠BC30]

9

The difference between the carrying amount of the financial liability (or part of a financial liability) extinguished, and the consideration paid, shall be recognised in profit or loss, in accordance with paragraph 3.3.3 of IFRS 9. The equity instruments issued shall be recognised initially and measured at the date the financial liability (or part of that liability) is extinguished.

[Refer:Basis for Conclusions paragraphs BC23⁠–⁠BC30]

10

When only part of the financial liability is extinguished, consideration shall be allocated in accordance with paragraph 8. The consideration allocated to the remaining liability shall form part of the assessment of whether the terms of that remaining liability have been substantially modified. [Refer:Basis for Conclusions paragraph BC30] If the remaining liability has been substantially modified, the entity shall account for the modification as the extinguishment of the original liability and the recognition of a new liability as required by paragraph 3.3.2 of IFRS 9. [Refer:Basis for Conclusions paragraph BC28]

11

An entity shall disclose a gain or loss recognised in accordance with paragraphs 9 and 10 as a separate line item in profit or loss or in the notes.

[Refer:Basis for Conclusions paragraph BC32]
Gain (loss) arising from difference between carrying amount of financial liability extinguished and consideration paid Disclosure Xduration, credit 800200

Effective date and transition

12

An entity shall apply this Interpretation for annual periods beginning on or after 1 July 2010. Earlier application is permitted. If an entity applies this Interpretation for a period beginning before 1 July 2010, it shall disclose that fact.

13

An entity shall apply a change in accounting policy in accordance with IAS 8 from the beginning of the earliest comparative period presented.

[Refer:Basis for Conclusions paragraph BC33]

14

[Deleted]

15

IFRS 13, issued in May 2011, amended paragraph 7. An entity shall apply that amendment when it applies IFRS 13.

16

[Deleted]

17

IFRS 9, as issued in July 2014, amended paragraphs 4, 5, 7, 9 and 10 and deleted paragraphs 14 and 16. An entity shall apply those amendments when it applies IFRS 9.

Appendices

AppendixAmendment to IFRS 1 First‑time Adoption of International Financial Reporting Standards

The amendment in this appendix shall be applied for annual periods beginning on or after 1 July 2010. If an entity applies this Interpretation for an earlier period, the amendment shall be applied for that earlier period.

* * * * *

The amendment contained in this appendix when this Interpretation was issued in 2009 has been incorporated into the text of IFRS 1 as issued on or after 26 November 2009.

Footnotes

1

The reference is to the IASC’s Framework for the Preparation and Presentation of Financial Statements, adopted by the Board in 2001 and in effect when the Interpretation was developed. (back)