Accounting for Troubled Debt Restructuring By Rocky J. Levkulich, CPA Date: 9/10/09 A troubled debt restructuring, commonly referred to as a 'TDR', is a modification of a loan's term for economic or legal reasons related to the debtor's financial difficulties.  Examples of TDRs include reduction of interest rates, forgiving principal or forgiving previously accrued but unpaid interest.  Modifications of terms that are consistent with market conditions and representative of borrower financial capacity are not TDRs.  TDRs are accounted for in accordance with Financial Accounting Standard No. 114.  FAS 114 requires that the loans be measured and booked at a) the present value of the expected cash flows discounted at the original loan's interest rate, or b) at the fair value of the collateral if the loan is collateral dependent.  The corresponding book entry increases the allowance for loan losses.  TDRs are also required to be reported in the bank's Call Report.