Distressed debt buyback accounting
Say a company has debt with book value 100. It goes into distress and buys back all of it for 50 cents on the dollar. Cash goes down by 50, correspondingly debt goes down by 50. But that leaves 50 in debt whereas the whole debt was bought back, Where/how do I account for the missing 50 (basically the loss of debt value due to distress)?
I could be mistaken, but I believe you should have written off the debt when it became distressed to the new value of 50. In journal entry form I am not sure... retained earnings debit 50 perhaps to account for the debt value loss?
If you deem it as impaired it would be written down to market value. Debit the liability 50, credit gain for 50
If you deem it as impaired it would be written down to market value. Debit the liability 50, credit gain for 50
What the fuck lads?! a company can just write off its debt because its traded down? you're kidding right?
Debt goes down to zero, you’ve paid off all your debt, why would there be debt left on the BS? You’ll recognize a gain on the IS which’ll make things balance out.
Haha that is a hilarious idea. The lender taking an impairment charge on the debt it issued.
he's not talking about the lender but the debtor, as is the question. And the lender of said debt would indeed take an impairment charge.
Yeah I mistyped. I meant debtor. I've spent 5 years in debt/distressed so I should get that right!
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