GASB issues rules for accounting for certain debt extinguishment

By Ken Tysiac

GASB issued a new standard Monday for state and local government to apply when accounting for extinguishment of debt prior to its maturity.

In Statement No. 86, Certain Debt Extinguishment Issues, GASB establishes rules for accounting for transactions in which cash and other monetary assets acquired with only existing resources are place in an irrevocable trust for the sole purpose of extinguishing debt.

Current GASB standards already provide guidance for accounting and reporting when cash and other monetary assets acquired with the proceeds of refunding bonds are placed in a trust for the future repayment of outstanding debt.

The guidance GASB issued Monday addresses situations in which only existing resources (and no bond proceeds) are used to acquire cash and other monetary assets placed in a trust for the future repayment of outstanding debt.

The debt, cash, and other monetary assets placed in trust are no longer reported on the financial statements when debt is defeased in substance. But governments are required to disclose information in the notes to the financial statements about debt that has been defeased in substance.

In addition, Statement No. 86 provides guidance related to prepaid insurance on debt that is extinguished and notes to the financial statements for defeased debt.

The standard takes effect for reporting periods beginning after June 15, 2017, and GASB encourages earlier application.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a JofA editorial director.

SPONSORED REPORT

CPEOs provide peace of mind around payroll services

The creation of these new IRS-certified service providers for small businesses clarifies some issues around traditional professional employer organizations.

QUIZ

8 sentences to help you master subject-verb agreement

When professionals prepare written material for readers inside their organization or outside, they should make sure that no errors distract from the message they need to convey. Take this short quiz for practice in subject-verb agreement.