TechSoft Inc. is a software company operating in Toronto, ON$.$ On January $1,2021,$ TechSoft signed a note with ABBC Bank to finance the opening of its new office in downtown. The $$4,000,000,3-$year note, issued at par, has an interest rate of $5\%($paid annually$)$ with a due date of December $31,2023.$ Currently, TechSoft has financial difficulties and will be unable to reimburse this note and two years of unpaid interest on the due date $(31/12/2023).$ It approached the bank for concessions at the beginning of December $2023.$ Both parties adopted IFRS.

The bank and TechSoft have agreed on the following terms, effective January $1,2024$:

$-$ The existing note will be replaced with a revised note bearing an annual interest rate of $3\%$ with a due date of December $31,2026,$ and a face value of $$3,700,000.$

$-$ The unpaid interest will be forgiven in exchange for a vacant storage building that TechSoft will transfer to the bank. The building has a net book value of $$20,000$ and a fair value of $$50,000$ as of December $2023.$

$-$ The market rate of interest is $4\%$ on January $1,2024.$

To determine if the re$-$financing is a major or minor modification, you need to performing the restructuring test. Compare the renegotiated debt plus payments made or asset given up $($storage building$),$ with the amount of the obligation forgiven. These amounts $($PV renegotiated debt $-$ $ ; existing obligation forgiven $-$ $$)$ are as follows:

Question $10$Answer

a$.$

$$3,700,000$ and $$4,400,000$

b$.$

$$3,647,322$ and $$4,000,000$

c$.$

$$3,597,322$ and $$4,000,000$

d$.$

$$3,498,480$ and $$4,400,000$

e$.$

$$3,548,480$ and $$4,400,000$

Assume that the renegotiated terms resulted in a major settlement. Calculate the amount at which TechSoft will record the new note $($note payable$)$ in its financial statements.

Question $11$Answer

a$.$

$$3,498,489$

b$.$

$$3,548,480$

c$.$

$$3,597,322$

d$.$

$$4,000,000$

e$.$

$$4,033,000$