IFRS 9Chapter 4Lesson 2
Extinguishing or modifying a financial liability: the 10% test
Step 1 of 8Learning objectives
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A financial liability leaves the balance sheet when it is extinguished; a substantial modification of its terms, assessed with the 10% test, amounts to extinguishing the old liability and creating a new one, and the difference goes to profit or loss.
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Learning objectives
- State when a financial liability is extinguished and calculate the gain or loss.
- Apply the 10% test to a modification of terms.
- Deduce the accounting consequence: the liability continues, or extinguishment and a new liability.
- Record the entries for extinguishment and substantial modification.