In the following exercise, you are required to review the Basis for Conclusions (BCs) for the standard(s)

Question:

In the following exercise, you are required to review the Basis for Conclusions (BCs) for the standard(s) that provide the accounting guidance for this topic. As the BCs are generally not included in the codification and thus are not authoritative, it will most likely be necessary for you to research them through review of the pre-codified standards. Appropriate references have been provided to allow you to do so. Pre-codified standards are accessible on the FAS B website or through the American Accounting Association’s Academic Accounting Access program, if your school participates in this program.
Scene 1 At December 31, 2012, the Gray Mountain Company ( GMC), a rain- making eco- friendly company, has a five- year note payable to a large bank. The underlying note agreement contains certain restrictive covenants ( minimum capital requirements, total debt- to- equity ratio, working capital ratio, and minimum cash balance requirements) that could accelerate the immediate payment of the debt if GMC does not meet these covenants each quarter- end ( March 31, June 30, September 30, and December 31). GMC was not in compliance with two of the ratios at December 31, 2012, but received a waiver from the bank for these two debt covenant violations on January 31, 2013, which was retroactive to December 31, 2012, and through January 1, 2014. Please read the following:
FAS B AS C 470- 10- 45- 13 through 21 and Statement of Financial Accounting Standards No. 6, Classification of Short Term Debt Obligations Expected to be Refinanced, paragraphs 1 through 6 and Appendix A – Basis for Conclusion, paragraphs 18 through 31. International Accounting Standard 1, Presentation of Financial Statements, paragraphs 69, 71, 74, and 75 and the BCs in IAS 1, paragraphs BC 39 through BC 48.
• Determine how the debt would be classified in GMC’s at December 31, 2012, under both U. S. and IFRS.
• Discuss and articulate the rationale and thought that the FASB and IASB went through in reaching their decisions in the accounting for debt classification if a debt covenant violation was cured near the date.
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