Hi,

Question regarding recognition of gain and lose for a debt settlement.

On 1/2/yr.1  A borrowed a loan, $12 millions with interest rate of 10% payable annually at the end of each yr from a bank for 5 yrs 

On 1/5/yr.2  A was not able to pay the interest, so he turned in a piece of land, cost 7.5millions, with the market value of 11millions to settle both of interest and loan amount.

prepare JE for A on settlement of the debt.

Dr. N/P 12,000,000

Dr. Int/P 1,200,000

Cr. Land $7,500,000

Cr. Gain on disposal of Land 3,500,000

Cr. Gain on debt settlement 2,200,000

my question is, should I recognize the gain on disposal of the land, 3.5millions separately or should I recognize the gain in debt settlement all together?

Thanks~

Thanks for your feedback.

Since the question didn't state the nature of A's business, so I couldn't tell whether the gains should be classified into ordinary or extraordinary.  (or should we say it is part of net income?)

I think interest should be included in the calculation because the time has passed by one yr already.  so the lender, which is the bank, has the right to receive the interest for at least one yr, unless the bank waive such debt.

The part that I'm confused about is should I recognize the gain in one aggregate amount or should I recognize the gains into two separate JE.....