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Debt Modification 10 Percent Cash Flow Test (ASC 470-50)

What does this come to under the current IRS rules?

Present value of new and remaining old cash flows at the original effective rate, and modification or extinguishment.

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Your figures
Example figuresIllustrative only. Type over them with your own.
Change in present value
9.34%
10% or more means extinguishment
PV of remaining original cash flows
$9,945,739
PV of new cash flows including fees
$10,875,016
Drawn to one scale
PV of remaining original cash flows$9,945,739
PV of new cash flows including fees$10,875,016
All results
MeasureResult
Change in present value9.34%
Result
Not substantially different: modification
PV of remaining original cash flows$9,945,739
PV of new cash flows including fees$10,875,016
How this was worked out
Work shownrecomputed as you type
PV old = remaining coupons and principal discounted at the original effective rate
PV new = new coupons and principal at the same rate + fees paid to the creditor
Change = |PV new - PV old| / PV old

Illustrative arithmetic on the figures you enter. Check the result against your firm's methodology before relying on it.

The formulas

  • PV old = remaining coupons and principal discounted at the original effective rate
  • PV new = new coupons and principal at the same rate + fees paid to the creditor
  • Change = |PV new - PV old| / PV old

How it works

ASC 470-50-40-10 treats a modification as substantially different when the present value of cash flows under the new terms is at least 10 percent different from the present value of the remaining cash flows under the original terms. ASC 470-50-40-12, as amended by ASU 2021-04, sets the rules: new cash flows include amounts paid by the debtor to the creditor less amounts received, and the discount rate is the original effective rate.

The tool assumes annual interest-only payments with principal at maturity. For callable, puttable or variable-rate debt, ASC 470-50-40-12 requires separate scenarios or the rate at the modification date.

Illustrative figures only. Check the result against your firm's methodology before relying on it.

Common questions

What if terms changed within the last year?

ASC 470-50-40-12(f) uses the debt terms that existed a year ago if the debt was modified without being substantially different in that year.

How are third-party costs treated?

Third-party costs are expensed in a modification and capitalized in an extinguishment, the reverse of creditor fees.

Does a conversion option change count?

Not in the cash flow test. ASC 470-50-40-10(a) runs a separate test on the change in fair value of the embedded conversion option.

Sources

Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.

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