4.5 Debt
Foreign-currency-denominated debt is a monetary liability and therefore should
be remeasured, as of each reporting date, in the functional currency at the current
exchange rate. Any change in the functional-currency-denominated value of the debt
caused by changes in exchange rates should be recognized as a transaction gain or
loss. However, if an entity has elected, in accordance with the fair value option,
to subsequently measure a liability at fair value, with changes reported in
earnings, the change in fair value that results from exchange rate changes will
represent a portion of the overall change in fair value and will not be reported
separately as a transaction gain or loss. ASC 825-10-45-5 requires an entity to
separately present, within OCI, the portion of the total change in the fair value of
a liability attributable to a change in the instrument-specific credit risk. ASC
830-20-35-7A addresses how to calculate the amount of the change in fair value that
is related to instrument-specific credit risk and indicates that an entity should
first measure this amount in the currency of denomination and then remeasure that
amount into the functional currency by using period-end spot rates.
4.5.1 Debt Issuance Costs
Under U.S. GAAP, entities are required to present debt issuance costs (other
than costs related to line-of-credit or
revolving-debt arrangements) on the balance sheet
as a direct deduction from the related debt
liability rather than as a deferred charge. Debt
issuance costs should be treated as a monetary
liability; therefore, the remeasurement of the
carrying amount of the debt liability in the
entity’s functional currency should reflect any
deduction related to debt issuance costs. In other
words, monetary liabilities (including the
carrying amount of a monetary debt liability that
has been adjusted for debt issuance costs) are
remeasured in the entity’s functional currency by
using current exchange rates.