FASB Releases Proposed ASU on Accounting for Debt Exchanges

The FASB has issued a proposed Accounting Standards Update (ASU), Accounting for Debt Exchanges. The proposal would introduce an incremental framework to simplify the determination of whether contemporaneous exchanges of cash between a debtor and a creditor should be accounted for as extinguishments of debt under ASC 470-50. Under this framework, an issuer would be required to consider new criteria in ASC 470-50-40-9 before applying the current guidance in ASC 470-50-40-10 through 40-12A. If these criteria are met, an issuer would account for a contemporaneous exchange of cash between the same debtor and creditor as an extinguishment of debt. If these criteria are not met, an issuer would perform an evaluation in accordance with the current guidance in ASC 470-50-40-10 through 40-12A to determine, on a creditor-by-creditor basis, whether such an exchange should be treated as a modification or an extinguishment of debt.