{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/405/20/#55-implementation-guidance-and-illustrations","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"405","topic_title":"Liabilities","subtopic":"405-20","subtopic_title":"Extinguishments of Liabilities","section":{"number":"55","label":"55 Implementation Guidance and Illustrations","anchor":"55-implementation-guidance-and-illustrations","is_sec":false,"groups":[{"block":null,"heading":"Implementation Guidance","paragraphs":[{"citation":"405-20-55-1","para":"55-1","html":"
This Section provides implementation guidance related to the extinguishment of liabilities.
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The following provides guidance on the application of the liability extinguishment criteria, specifically related to the following:
  1. a
    In-substance defeasance transactions
  2. b
    Transfers of noncash financial assets in settlement of a creditor's receivable
  3. c
    Subparagraph superseded by Accounting Standards Update No. 2012-04.
  4. d
    Extinguishment via legal defeasance.
","snippet":"The following provides guidance on the application of the liability extinguishment criteria, specifically related to the following:\n(a) In-substance defeasance transactions\n(b) Transfers of noncash financial assets in se…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7575356a42b7e8c3128a3cb8725aaac68815207356116254b11b2bd955faa586","downloaded_from":"2026-09-10T00:14:05.784Z","last_downloaded_at":"2026-09-10T00:14:05.784Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147482534","source_sha256":"24904f5dfb63de58ecf864fe29fb11db40509c23b08b9d8d9242fdb9eeb07e05"}},{"citation":"405-20-55-3","para":"55-3","html":"
In an in-substance defeasance transaction, a debtor transfers essentially risk-free assets to an irrevocable defeasance trust and the cash flows from those assets approximate the scheduled interest and principal payments of the debt being extinguished.
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An in-substance defeasance transaction does not meet the derecognition criteria in either Section 405-20-40 for the liability or in Section 860-10-40 for the asset. The transaction does not meet the criteria because of the following:
  1. a
    The debtor is not released from the debt by putting assets in the trust; if the assets in the trust prove insufficient, for example, because a default by the debtor accelerates its debt, the debtor must make up the difference.
  2. b
    The lender is not limited to the cash flows from the assets in trust.
  3. c
    The lender does not have the ability to dispose of the assets at will or to terminate the trust.
  4. d
    If the assets in the trust exceed what is necessary to meet scheduled principal and interest payments, the transferor can remove the assets.
  5. e
    Subparagraph superseded by Accounting Standards Update No. 2012-04.
  6. f
    The debtor does not surrender control of the benefits of the assets because those assets are still being used for the debtor's benefit, to extinguish its debt, and because no asset can be an asset of more than one entity, those benefits must still be the debtor's assets.
","snippet":"An in-substance defeasance transaction does not meet the derecognition criteria in either Section 405-20-40 for the liability or in Section 860-10-40 for the asset. The transaction does not meet the criteria because of t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:190be3c7c63c240437e4d74f96b50e081f0300552439d0ab7833cabc1771b961","downloaded_from":"2026-09-10T00:14:05.784Z","last_downloaded_at":"2026-09-10T00:14:05.784Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147482534","source_sha256":"24904f5dfb63de58ecf864fe29fb11db40509c23b08b9d8d9242fdb9eeb07e05"}},{"citation":"405-20-55-5","para":"55-5","html":"
A cash payment or conveyance of noncash financial assets from a debtor to a creditor results in full or partial settlement of the creditor's receivable from the debtor. Whether or not that settlement is an extinguishment is governed by paragraph 405-20-40-1. However, if a noncash financial asset was conveyed to the creditor in full or partial settlement of a creditor's receivable, it would be rare to conclude that debt has been extinguished if the criteria of paragraph 860-10-40-5 were not also met.
","snippet":"A cash payment or conveyance of noncash financial assets from a debtor to a creditor results in full or partial settlement of the creditor's receivable from the debtor. Whether or not that settlement is an extinguishment…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:230e71b1f139e4061d245c17862122042d439961b71857cb51ced34650f61cc8","downloaded_from":"2026-09-10T00:14:05.784Z","last_downloaded_at":"2026-09-10T00:14:05.784Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147482534","source_sha256":"24904f5dfb63de58ecf864fe29fb11db40509c23b08b9d8d9242fdb9eeb07e05"}},{"citation":"405-20-55-6","para":"55-6","html":"
Paragraphs 405-20-55-6 through 55-8 superseded by Accounting Standards Update No. 2009-16.
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In a legal defeasance, generally the creditor legally releases the debtor from being the primary obligor under the liability. Liabilities are extinguished by legal defeasances if the condition in paragraph 405-20-40-1(b) is satisfied. Whether the debtor has in fact been released and the condition in that paragraph has been met is a matter of law. Conversely, in an in-substance defeasance, the debtor is not released from the debt by putting assets in the trust. For the reasons identified in paragraph 405-20-55-4, an in-substance defeasance is different from a legal defeasance and the liability is not extinguished.
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