GASB has issued a new standard, Statement No. 86, for state and local governments to apply when accounting for extinguishment of debt prior to its maturity. In this Statement, GASB establishes rules for accounting for the transactions in which cash and other monetary assets acquired with only existing resources are place in an irrevocable trust for the sole purpose to extinguish debt.
Current GASB standards already provide guidance for accounting and reporting when cash and other monetary assets acquired with the proceeds of refundable bonds are placed in a trust for future repayment of outstanding debt. Statement No. 86 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 financial statement notes about debt that has been defeased in substance. Statement No, 86 also provides guidance related to prepaid insurance on debt that is extinguished and notes to the financial statements about debt that has been defeased.
The standard takes effect for reporting periods beginning after June 15, 2017.
VACo Contact: Vicky Steinruck, CPA