Accounting for debt/equity swap - timing issues?

Agreeing to settle a debt with an equity issue, minuted before a year end but completed after.

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We have a client which has passed a resolution to issue equity in settlement of a debt. This resolution was passed pre-year end, but shares were formally issued afterwards due to a delay in completing the paperwork.

Question is whether we can recognise the swap at year end within equity (such as a separate "shares to be issued" reserve or similar), or is it merely a PBSE disclosure and leave as debt?

I'm struggling to find any guidance which considers a timing difference across a year end, so any help gratefully received!

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paddle steamer
10th Apr 2024 14:01

I go for no issue of shares until next year, but PBSE note, but this is me flying by instinct rather than knowledge. Usually as soon as I do this someone on here pops up with actual facts contrary to my original point of view.

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By Bobbo
10th Apr 2024 14:04

I would suggest that having passed a resolution to issue equity is essentially meaningless. The fact is that no equity had been issued as at the year end date and the debt was still owed by the company to the creditor.

So I would think leave as debt and post balance sheet event disclosure.

Could extend the accounting period to after the debt for equity issue was completed if particularly concerned about having a balance sheet showing the debt.

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By paul.benny
10th Apr 2024 14:25

The key date is that on which the debt/equity swap becomes binding on Company. The significance of the resolution is that it grants authority to issue shares - the purpose is not really relevant

Presumably there is an agreement with the holder of the debt. Does that have any provisions about timing? Failing that, it's caught by FRS102 32.11(f).

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