# ASC 405-20-55: Liabilities — Extinguishments of Liabilities — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/405/20/#55-implementation-guidance-and-illustrations) 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. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T00:14:05.784Z to 2026-09-10T00:14:05.784Z Record version: sha256:c97cfe4c446673c744a927b65812864950471527e70941e5e65ee3b362cf9a35 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 405-20-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/405/20/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [405-20-55-1](https://asc.understandingaccounting.org/asc/405/20/#405-20-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:14:05.784Z to 2026-09-10T00:14:05.784Z Record version: sha256:4d872f65d2e7a95778068b7eac775791aa50fffbca68fa55c8d415aefcb8daeb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section provides implementation guidance related to the extinguishment of liabilities. ##### [405-20-55-2](https://asc.understandingaccounting.org/asc/405/20/#405-20-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T00:14:05.784Z to 2026-09-10T00:14:05.784Z Record version: sha256:7575356a42b7e8c3128a3cb8725aaac68815207356116254b11b2bd955faa586 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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 c [Subparagraph superseded by Accounting Standards Update No. 2012-04](https://asc.understandingaccounting.org/updates/asu-2012-04/). 4. d Extinguishment via legal defeasance. ##### [405-20-55-3](https://asc.understandingaccounting.org/asc/405/20/#405-20-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T00:14:05.784Z to 2026-09-10T00:14:05.784Z Record version: sha256:6199d24cf169987fbfb760e0d239b39337f4f54d6e8045797e54a19a1f68a74e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [405-20-55-4](https://asc.understandingaccounting.org/asc/405/20/#405-20-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T00:14:05.784Z to 2026-09-10T00:14:05.784Z Record version: sha256:190be3c7c63c240437e4d74f96b50e081f0300552439d0ab7833cabc1771b961 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/updates/asu-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. ##### [405-20-55-5](https://asc.understandingaccounting.org/asc/405/20/#405-20-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T00:14:05.784Z to 2026-09-10T00:14:05.784Z Record version: sha256:230e71b1f139e4061d245c17862122042d439961b71857cb51ced34650f61cc8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/asc/405/20/#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](https://asc.understandingaccounting.org/asc/860/10/#860-10-40-5) were not also met. ##### [405-20-55-6](https://asc.understandingaccounting.org/asc/405/20/#405-20-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T00:14:05.784Z to 2026-09-10T00:14:05.784Z Record version: sha256:98a3c525cadcb24cb1c30b27d2f591822aac96fb7e66a3bb318a80f2c2a2f831 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraphs 405-20-55-6 through 55-8 superseded by Accounting Standards Update No. 2009-16](https://asc.understandingaccounting.org/asc/405/20/#405-20-55-6). ##### [405-20-55-9](https://asc.understandingaccounting.org/asc/405/20/#405-20-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T00:14:05.784Z to 2026-09-10T00:14:05.784Z Record version: sha256:6ee0556ad3276c60630ebad5097b24972930b648337f0747e64c90c159cba6fa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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)](https://asc.understandingaccounting.org/asc/405/20/#405-20-40-1) 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](https://asc.understandingaccounting.org/asc/405/20/#405-20-55-4), an in-substance defeasance is different from a legal defeasance and the liability is not extinguished.