FAR, Financial Accounting and Reporting
Sources for Receivables: Recognition, Fees and Costs
Last reviewed
The standards and authorities behind PocketCPA's FAR lessons on Receivables: Recognition, Fees and Costs. The topic rests on ASC 310.
About this topic
A loan is not worth its face amount, and it is not worth what somebody would pay for it either.
It is carried at what the lender has actually invested in it, and that number is rarely the principal. The borrower paid an origination fee, which reduces the lender's investment. The lender paid an underwriter, which increases it. The loan may have been bought at a discount. Some of it may already have been written off. Each of those adjusts the carrying amount, and each is recognized over the life of the loan rather than at the moment cash changed hands.
Key points
- Financing receivables are measured at amortized cost when held for collection, adjusted for charge-offs and the allowance.
- Receivables held for sale are measured at the lower of amortized cost or fair value.
- Loan origination fees and direct costs are deferred and recognized over the loan's life as a yield adjustment.
- ASC 310 excludes debt securities, lease receivables, and contract assets from its scope.
What the lessons cover
- What is a financing receivable (ASC 310-10-15-2)
- Receivables held for collection: the carrying amount (ASC 310-10-35-47)
- Loans held for sale (ASC 310-10-35-48)
- Which origination costs may be deferred (ASC 310-20-25-2)
- Netting fees against costs, and the yield adjustment (ASC 310-20-30-2 and 310-20-35-18)
- Commitment fees (ASC 310-20-40-1)
- Modifications: the 10 percent test (ASC 310-20-35-11)
- Increasing-rate loans (ASC 310-20-30-3)
Authoritative references
Where these requirements sit in the literature.
- ASC 310-10-15-2, the definition of a financing receivable.
- ASC 310-10-35-47, the carrying amount of receivables held for the foreseeable future or until maturity.
- ASC 310-10-35-48, measurement of nonmortgage loans held for sale at the lower of amortized cost basis or fair value.
- ASC 310-20-25-2, the limitation of deferral to incremental direct costs of originating a specific loan.
- ASC 310-20-30-2, offsetting origination fees against related direct costs and deferring only the net amount.
- ASC 310-20-30-3, the limit on carrying an increasing-rate loan's net investment above the settlement amount.
- ASC 310-20-35-11, the 10 percent present value test distinguishing minor from more-than-minor modifications.
- ASC 310-20-35-18, periodic amortization as the difference between interest at the effective yield and stated interest.
- ASC 310-20-40-1, recognition of a commitment fee on expiration of an unexercised commitment.
- ASC 310-20-40-12, derecognition of net deferred amounts on sale or extinguishment.
- Two other Topics are reached from inside these paragraphs.
- ASC 326 supplies the allowance for credit losses referenced in the carrying amount.
- ASC 606 governs when a receivable arises from a contract with a customer.
How PocketCPA uses these sources
Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.