CERTYNEX IFRS ACADEMY

A colleague summarises the treatment of the modification of a financial liability. Which of these sentences is wrong?

In the 10% test, the cash flows are discounted at the effective interest rate of the new debt.

A substantial modification of the terms of an existing liability is accounted for as the extinguishment of the original liability and the recognition of a new liability.

The 10% test compares the present value of the cash flows under the new terms with that of the remaining cash flows of the original liability.

A substantial modification is treated as an extinguishment, whether or not it is due to the financial difficulties of the debtor.