Question

GO inc currently has an issued debenture outstanding with HR bank. The note has a principal...

GO inc currently has an issued debenture outstanding with HR bank. The note has a principal of $2.5 million, was issued at face value, an interest payable 7%. The term of the debenture was 10years, and was issued on Dec31, 2010. The current market rate of this debenture is 9%. GO inc has financial difficulties and has asked HR bank to restructure the note. Both GO ink and HR bank prepare financial statements under IFRS. It is Dec 3, 2017 currently.

HR bank has agreed to accept a building in exchange for relinquishing this debenture. This building has a currying amount of $950000, (original $4,000,000) and a fair value of $2.1 million. Assume that the bank had already recognized a loss on imparement.

Question#

Prepare journal entries that GO inc and HR bank would make for the restructuring.

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Answer #1
GO inc
Debit Credit
Debenture Capital Account 2,500,000.00
Building Account      950,000.00
Revaluation Gain 1,150,000.00
Gain on Debenture Transfer      400,000.00
2,500,000.00 2,500,000.00
HR bank
Debit Credit
Building Carrying Value      950,000.00
Un-realized gain on building 1,150,000.00
Loss on debenture transaction      400,000.00
Debenture Account 2,500,000.00
Revaluation Gain
Fair Value 2,100,000.00
Building Carrying Value      950,000.00
Revaluation Gain 1,150,000.00
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