Final answer:
The recognition of gain or loss under IFRS for debt extinguishment requires distinguishing between modifications and extinguishments, measuring the difference between the debt's carrying amount and the extinguishment payment, and recording the result in the profit and loss account.
Step-by-step explanation:
Debt Extinguishment Accounting:
Under IFRS, the general rules for measuring and recognizing gain or loss by a debt extinguishment with modification are as follows: if the terms of the debt are substantially different, the distinction between a modification and extinguishment applies. A gain or loss is recognized in the profit and loss account for the amount by which the carrying amount of the original financial liability differs from the consideration paid, including any non-cash assets transferred or liabilities incurred.
If the modification of terms does not result in extinguishment, a gain or loss is recognized based on a revised amortization schedule using the original effective interest rate. To recognize gain or loss, entities should compare the carrying amount of the debt to the payment made to extinguish it. For substantial modifications, the old financial liability is derecognized and the new liability is recognized at its fair value.