6. Amend paragraphs 310-20-35-2 and 310-20-35-9 through 35-10, supersede paragraph 310-20-35-12, and add paragraphs 310-20-35-12A through 35-12C and their related headings, 310-20-40-3, 310-20-40-5 through 40-7, and 310-20-40-9 and their related headings, 310-20-55-18A and its related heading, and 310-20-55-51, 310-20-55-52, and 310-20-55-54 through 55-56 and their related headings, with a link to transition paragraph 326-10-65-5, and paragraph 310-20-35-12D and its related heading, paragraphs 310-20-40-2, 310-20-40-4, 310-20-40-8, 310-20-40-10 through 40-12 and their related headings, and paragraphs 310-20-55-18B through 18F and 310-20-55-53 and their related headings, with no additional link to transition, as follows:
Receivables—Nonrefundable Fees and Other Costs
Initial Measurement
> Loan Origination Fees and Costs
310-20-30-2 Loan origination fees and related direct loan origination costs for a given loan shall be offset and only the net amount shall be deferred.
310-20-30-3 For increasing interest rate loans, the recorded net investment in a loan may exceed the amount by which the borrower could settle the obligation but only if the excess results from a purchase premium (loans purchased) or loan costs that qualify for deferral in excess of loan fees (loans originated).
Subsequent Measurement
> Loan Origination Fees and Costs
310-20-35-2 Loan origination fees deferred in accordance with paragraph 310-20-25-2 shall be recognized over the life of the loan as an adjustment of yield (interest income). Likewise,
direct loan origination costs deferred in accordance with that paragraph shall be recognized as a reduction in the yield of the loan
except as set forth in paragraph 310-20-35-12 (for a troubled debt restructuring)
. Paragraph 310-20-30-2 explains that loan origination fees and related direct loan origination costs for a given loan shall be offset and only the net amount shall be amortized.
For loans that are refinanced or restructured, see paragraphs 310-20-35-9 through 35-10.
> Loan Refinancing or Restructuring
310-20-35-9 If the terms of the new loan resulting from a loan refinancing or restructuring
, in which the refinancing or restructuring is not itself a troubled debt restructuring,
are at least as favorable to the lender as the terms for comparable loans to other customers with similar collection risks who are not refinancing or restructuring a loan with the lender, the refinanced loan shall be accounted for as a new loan. This condition would be met if the new loan’s effective yield is at least equal to the effective yield for such loans and modifications of the original debt instrument are more than minor. Any unamortized net fees or costs and any prepayment penalties from the original loan shall be recognized in interest income when the new loan is granted. The effective yield comparison considers the level of nominal interest rate, commitment and origination fees, and direct loan origination costs and would also consider comparison of other factors where appropriate, such as compensating balance arrangements.
310-20-35-10 If the refinancing or restructuring does not meet the condition set forth in
the preceding
paragraph
310-20-35-9 or if only minor modifications are made to the original loan contract, the unamortized net fees or costs from the original loan and any prepayment penalties shall be carried forward as a part of the net investment in the new loan. In this case, the investment in the new loan shall consist of the remaining
net investment in the original loan, any additional
amounts loaned
funds advanced to the borrower, any fees received, and direct loan origination costs associated with the refinancing or restructuring.
310-20-35-11 A modification of a debt instrument shall be considered more than minor under the preceding paragraph if the present value of the cash flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. If the difference between the present value of the cash flows under the terms of the new debt instrument and the present value of the remaining cash flows under the terms of the original debt instrument is less than 10 percent, a creditor shall evaluate whether the modification is more than minor based on the specific facts and circumstances (and other relevant considerations) surrounding the modification. The guidance in Topic 470 shall be used to calculate the present value of the cash flows for purposes of applying the 10 percent test.
310-20-35-12 Paragraph superseded by Accounting Standards Update No. 2022-02.Fees received in connection with a modification of terms of a troubled debt restructuring as defined in Subtopic 310-40 shall be applied as a reduction of the recorded investment in the loan. All related costs, including direct loan origination costs, shall be charged to expense as incurred.
> > >
Substitution or Addition of Debtors
310-20-35-12A A
troubled debt
loan refinancing or restructuring may involve substituting debt of another business entity, individual, or government entity for that of the
troubled
debtor or adding another debtor (for example, as a joint debtor). Government entities include, but are not limited to, states, counties, townships, municipalities, school districts, authorities, and commissions. That kind of restructuring should be accounted for according to its substance. For example, a restructuring in which, after the restructuring, the substitute or additional debtor controls, is controlled by (as defined in paragraphs 810-10-15-8 through 15-8A), or is under common control with the original debtor is an example of one that shall be accounted for by the creditor as
a loan refinancing or restructuring as prescribed in paragraphs 310-20-35-9 through 35-11 prescribed in this Topic.
This Topic shall also apply to
Similarly, a restructuring in which the substitute or additional debtor and original debtor are related after the restructuring by an agency, trust, or other relationship that in substance earmarks certain of the original debtor’s funds or funds flows for the creditor although payments to the creditor may be made by the substitute or additional debtor
should be accounted for by the creditor as a loan refinancing or restructuring as prescribed in paragraphs 310-20-35-9 through 35-11. In contrast, a restructuring in which the substitute or additional debtor and the original debtor do not have any of the relationships described above after the restructuring shall be accounted for by the creditor according to the provisions of paragraphs
310-20-40-2 through 40-5 310-40-40-2 through 40-4
.
[Content amended as shown and moved from paragraph 310-40-25-2]
> > >
Partial Satisfaction of a Receivable
310-20-35-12B In a partial satisfaction of a receivable (see
the following
paragraph
310-20-35-12C), the fair value of the assets received shall be used in all cases to avoid the need to allocate the fair value of the receivable between the part satisfied and the part still outstanding.
[Content amended as shown and moved from paragraph 310-40-35-6]
310-20-35-12C A troubled debt restructuring may involve receipt of assets (including an equity interest in the debtor) in partial satisfaction of a receivable and a modification of terms of the remaining receivable. Even if the stated terms of the remaining receivable, for example, the stated interest rate and the maturity date or dates, are not changed in connection with the receipt of assets (including an equity interest in the debtor), the restructuring shall be accounted for as prescribed by this paragraph. A creditor shall account for a troubled debt restructuring involving a partial satisfaction and modification of terms as prescribed in this Topic except that, first, the assets received shall be accounted for as prescribed in paragraphs 310-40-40-2 through 40-4 and the recorded investment in the receivable shall be reduced by the fair value less cost to sell of the assets received. If cash is received in a partial satisfaction of a receivable, the recorded investment in the receivable shall be reduced by the amount of cash received. [Content moved from paragraph 310-40-35-7]
Pending Content:
Transition Date: (P) December 16, 2019; (N) December 16, 2022 I Transition Guidance: 326-10-65-1
A troubled debt restructuring may involve receipt of assets (including an equity interest in the debtor) in partial satisfaction of a receivable and a modification of terms of the remaining receivable. Even if the stated terms of the remaining receivable, for example, the stated interest rate and the maturity date or dates, are not changed in connection with the receipt of assets (including an equity interest in the debtor), the restructuring shall be accounted for as prescribed by this paragraph. A creditor shall account for a troubled debt restructuring involving a partial satisfaction and modification of terms as prescribed in this Topic except that, first, the assets received shall be accounted for as prescribed in paragraphs 310-40-40-2 through 40-4 and the amortized cost basis shall be reduced by the fair value less cost to sell of the assets received. If cash is received in a partial satisfaction of a receivable, the amortized cost basis shall be reduced by the amount of cash received. [Content moved from paragraph 310-40-35-7]
In addition, amend the following pending content for paragraph 310-20-35-12C, with a link to transition paragraph 326-10-65-5:
Pending Content:
Transition Date: (P) December 16, 2022; (N) December 16, 2022 I Transition Guidance: 326-10-65-5
A
troubled debt
loan refinancing or restructuring may involve receipt of assets (including an equity interest in the debtor) in partial satisfaction of a receivable and a modification of terms of the remaining receivable. Even if the stated terms of the remaining receivable, for example, the stated interest rate and the maturity date or dates, are not changed in connection with the receipt of assets (including an equity interest in the debtor), the restructuring shall be accounted for as prescribed by this paragraph. A creditor shall account for a
troubled debt
loan refinancing or restructuring involving a partial satisfaction and modification of terms as prescribed in
paragraphs 310-20-35-9 through 35-11 this Topic
except that, first, the assets received shall be accounted for as prescribed in paragraphs
310-20-40-2 through 40-4 310-40-40-2 through 40-4
and the
amortized cost basis shall be reduced by the fair value less cost to sell of the assets received. If cash is received in a partial satisfaction of a receivable, the amortized cost basis shall be reduced by the amount of cash received.
[Content amended as shown and moved from paragraph 310-40-35-7]
310-20-35-12D The Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10 do not allow the lender to look-back to lending impairments measured and recognized under this Topic or Topic 450 for purposes of measuring the cumulative loss previously recognized in determining the gain to be recognized on the increase in fair value less cost to sell of a foreclosed property under paragraph 360-10-35-40. [Content moved from paragraph 310-40-35-11]
Pending Content:
Transition Date: (P) December 16, 2019; (N) December 16, 2022 I Transition Guidance: 326-10-65-1
The Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10 do not allow the lender to look-back to credit losses measured and recorded under Topic 326 for purposes of measuring the cumulative loss previously recognized in determining the gain to be recognized on the increase in fair value less cost to sell of a foreclosed property under paragraph 360-10-35-40. [Content moved from paragraph 310-40-35-11]
Derecognition
> Commitment Fees
310-20-40-1 Except as set forth in paragraph 310-20-35-3(a) through (b), fees received for a commitment to originate or purchase a loan or group of loans shall be, if the commitment expires unexercised, recognized in income upon expiration of the commitment.
> Receipt of Assets in Full Satisfaction of a Receivable
310-20-40-2 A creditor that receives from a debtor in full satisfaction of a receivable either or both of the following shall account for those assets (including an equity interest) at their fair value at the time of the restructuring:
a. Receivables from third parties, real estate, or other assets
b. Shares of stock or other evidence of an equity interest in the debtor. [Content moved from paragraph 310-40-40-2]
310-20-40-3 A creditor that receives long-lived assets that will be sold from a debtor in full satisfaction of a receivable shall account for those assets at their fair value less cost to sell, as that term is used in paragraph 360-10-35-43. The excess of the recorded investment in the receivable satisfied over the fair value of assets received (less cost to sell, if required above) is a loss that shall be recognized. For purposes of this paragraph, losses, to the extent they are not offset against allowances for uncollectible amounts or other valuation accounts, shall be included in measuring net income for the period. Recorded investment in the receivable is used in paragraphs 310-40-25-1 through 25-2; 310-40-35-7; 310-40-40-2 through 40-8; and 310-40-50-1 instead of carrying amount of the receivable because the latter is net of an allowance for estimated uncollectible amounts or other valuation account, if any, while the former is not. [Content moved from paragraph 310-40-40-3
Pending Content:
Transition Date: (P) December 16, 2019; (N) December 16, 2022 I Transition Guidance: 326-10-65-1
A creditor that receives long-lived assets that will be sold from a debtor in full satisfaction of a receivable shall account for those assets at their fair value less cost to sell, as that term is used in paragraph 360-10-35-43. The excess of the amortized cost basis satisfied over the fair value of assets received (less cost to sell, if required above) is a loss that shall be recognized. For purposes of this paragraph, losses, to the extent they are not offset against allowances for uncollectible amounts or other valuation accounts, shall be included in measuring net income for the period. The amortized cost basis is used in paragraphs 310-40-25-1 through 25-2; 310-40-35-7; 310-40-40-2 through 40-8; and 310-40-50-1 instead of carrying amount of the receivable because the latter is net of an allowance for estimated uncollectible amounts or other valuation account, if any, while the former is not. [Content moved from paragraph 310-40-40-3
In addition, amend the following pending content for paragraph 310-20-40-3, with a link to transition paragraph 326-10-65-5:
Pending Content:
Transition Date: (P) December 16, 2022; (N) December 16, 2022 I Transition Guidance: 326-10-65-5
A creditor that receives long-lived assets that will be sold from a debtor in full satisfaction of a receivable shall account for those assets at their fair value less cost to sell, as that term is used in paragraph 360-10-35-43. The excess of the
amortized cost basis satisfied over the fair value of assets received (less cost to sell, if required above) is a loss that shall be recognized. For purposes of this paragraph, losses, to the extent they are not offset against allowances for uncollectible amounts or other valuation accounts, shall be included in measuring net income for the period. The amortized cost basis is used in paragraphs
310-20-35-12A 310-40-25-1 through 25-2
;
310-20-35-12C 310-40-35-7
;
310-20-40-2 through 40-9 310-40-40-2 through 40-8
; and
310-10-50-36 310-40-50-1
instead of
carrying amount of the receivable because the latter is net of an allowance for estimated uncollectible amounts or other valuation account, if any, while the former is not.
[Content amended as shown and moved from paragraph 310-40-40-3]
310-20-40-4 That guidance is not intended to preclude using the fair value of the receivable satisfied if more clearly evident than the fair value of the assets received in full satisfaction of a receivable. [Content moved from paragraph 310-40-40-4]
310-20-40-5 After a troubled debt restructuring, a
A creditor shall account for assets received in satisfaction of a receivable the same as if the assets had been acquired for cash.
[Content amended as shown and moved from paragraph 310-40-40-5]
> Foreclosure
310-20-40-6 A
troubled debt
restructuring that is in substance a repossession or foreclosure by the creditor, that is, the creditor receives physical possession of the debtor’s assets regardless of whether formal foreclosure proceedings take place, or in which the creditor otherwise obtains one or more of the debtor’s assets in place of all or part of the receivable, shall be accounted for according to the provisions of paragraphs
310-20-35-12C 310-40-35-7
,
310-20-40-2 through 40-4 310-40-40-2 through 40-4
, and, if appropriate,
310-20-40-9 310-40-40-8
. See paragraphs
310-20-40-7 through 40-8 310-40-40-7A through 40-7B
for the classification and measurement of certain government-guaranteed mortgage loans. For guidance on when a creditor shall be considered to have received physical possession (resulting from an in substance repossession or foreclosure) of residential real estate property collateralizing a consumer mortgage loan, see paragraph
310-20-55-18F 310-40-55-10A
.
[Content amended as shown and moved from paragraph 310-40-40-6]
> > Classification and Measurement of Certain Government-Guaranteed Mortgage Loans upon Foreclosure
310-20-40-7 A guaranteed mortgage loan receivable shall be derecognized and a separate other receivable shall be recognized upon foreclosure (that is, when a creditor receives physical possession of real estate property collateralizing a mortgage loan in accordance with the guidance in paragraph
310-20-40-6 310-40-40-6
) if the following conditions are met:
a. The loan has a government guarantee that is not separable from the loan before foreclosure.
b. At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim. A creditor would be considered to have the ability to recover under the guarantee at the time of foreclosure if the creditor determines that it has maintained compliance with the conditions and procedures required by the guarantee program.
c. At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. [Content amended as shown and moved from paragraph 310-40-40-7A]
310-20-40-8 Upon foreclosure, the separate other receivable shall be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. [Content moved from paragraph 310-40-40-7B
> Sale of Assets from a Troubled Debt
Loan Refinancing or Restructuring
310-20-40-9 In the case of a loan refinancing or restructuring deemed to be a new loan in accordance with paragraphs 310-20-35-9 through 35-11, a A
receivable from the sale of assets previously obtained in a
troubled debt
loan refinancing or restructuring shall be accounted for according to Subtopic 835-30 regardless of whether the assets were obtained in satisfaction (full or partial) of a receivable to which that Topic was not intended to apply. A difference, if any, between the amount of the new receivable and the carrying amount of the assets sold is a gain or loss on sale of assets.
[Content amended as shown and moved from paragraph 310-40-40-8]
> Cost Basis of Debt Security Received in a Restructuring
310-20-40-10 The initial cost basis of a debt security of the original debtor received as part of a debt restructuring shall be the security’s fair value at the date of the restructuring. Any excess of the fair value of the security received over the net carrying amount of the loan shall be recorded as a recovery on the loan. Any excess of the net carrying amount of the loan over the fair value of the security received shall be recorded as a charge-off to the allowance for credit losses. Subsequent to the restructuring, the security received shall be accounted for according to the provisions of Topic 320. [Content moved from paragraph 310-40-40-8A]
310-20-40-11 A security received in a restructuring in settlement of a claim for only the past-due interest on a loan shall be measured at the security’s fair value at the date of the restructuring and accounted for in a manner consistent with the entity’s policy for recognizing cash received for past-due interest. Subsequent to the restructuring, the security received shall be accounted for according to the provisions of Topic 320. [Content moved from paragraph 310-40-40-9]
> Cost Basis of a Long-Lived Asset Received in Full Satisfaction of a Receivable
310-20-40-12 A valuation allowance for a loan collateralized by a long-lived asset shall not be carried over as a separate element of the cost basis for purposes of accounting for the long-lived asset under Topic 360 after foreclosure. [Content moved from paragraph 310-40-40-10]
Implementation Guidance and Illustrations
> Implementation Guidance
> > Use of Zero Coupon Bonds in a Troubled Debt
Loan Refinancing or Restructuring
310-20-55-18A This implementation guidance addresses the following circumstance: In connection with a
troubled debt
loan refinancing or restructuring, a debtor, with the creditor’s approval, sells the collateral, which has a fair value less than the creditor’s net investment in the related loan, and invests the proceeds in a series of zero coupon bonds that are received and held by the creditor as collateral for the newly restructured loan. The bonds will mature at a value equal to each year’s debt service requirement under the newly restructured terms. Specifically, the issue is whether the sale of collateral, the purchase of the zero coupon bonds, and their receipt by the creditor as collateral require the creditor to recognize a loss equal to the amount by which the net investment in the loan exceeds the fair value of the zero coupon bonds.
[Content amended as shown and moved from paragraph 310-40-55-6]
310-20-55-18B The excess of the recorded investment in the receivable satisfied over the fair value less cost to sell (as that term is used in paragraph 360-10-35-43) of assets received is a loss to be recognized. [Content moved from paragraph 310-40-55-7]
Pending Content:
Transition Date: (P) December 16, 2019; (N) December 16, 2022 I Transition Guidance: 326-10-65-1
The excess of the amortized cost basis satisfied over the fair value less cost to sell (as that term is used in paragraph 360-10-35-43) of assets received is a loss to be recognized. [Content moved from paragraph 310-40-55-7]
310-20-55-18C Such losses, to the extent they are not offset against allowances for uncollectible accounts or other valuation accounts, shall be included in measuring net income for the period. [Content moved from paragraph 310-40-55-8]
310-20-55-18D However, if the creditor has the right to sell or pledge the collateral:
a. Paragraph 860-30-45-1 requires that the debtor reclassify the collateral and report it in its statement of financial position separately from other assets not so encumbered.
b. Paragraph 860-30-50-1A requires, in part, that the creditor disclose the fair value of that collateral and of the portion that it has sold or repledged. [Content moved from paragraph 310-40-55-9]
310-20-55-18E If the creditor does not have the right to sell or pledge the collateral, paragraph 860-30-50-1A requires that the debtor disclose information about that collateral. [Content moved from paragraph 310-40-55-10]
> > Physical Possession of Residential Real Estate Property Collateralizing a Consumer Mortgage Loan
310-20-55-18F A creditor is considered to have received physical possession (resulting from an in substance repossession or foreclosure) of residential real estate property collateralizing a consumer mortgage loan only upon the occurrence of either of the following:
a. The creditor obtains legal title to the residential real estate property upon completion of a foreclosure. A creditor may obtain legal title to the residential real estate property even if the borrower has redemption rights that provide the borrower with a legal right for a period of time after a foreclosure to reclaim the real estate property by paying certain amounts specified by law.
b. The borrower conveys all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The deed in lieu of foreclosure or similar legal agreement is completed when agreed-upon terms and conditions have been satisfied by both the borrower and the creditor. [Content moved from paragraph 310-40-55-10A]
> Illustrations
> > Example 12 2
: Fair Value Less Cost to Sell Less Than the Seller’s Net Receivable
310-20-55-51 This Example illustrates the guidance in Subtopic 310-40. The Example has the following assumptions:
a. At December 31, 2002, a lender’s net real estate loan receivable was $90,000. The net receivable was comprised of (a) $100,000 principal balance and (b) $10,000 allowance for doubtful accounts due to the deterioration of the borrower’s credit worthiness; the allowance was based on the underlying value of the real estate since the loan is collateral dependent.
b. Between December 31, 2002 and March 31, 2003, the borrower did not make principal payments. The lender determined that foreclosure was probable on March 31, 2003; the real estate’s estimated fair value was $75,000. The estimated costs to sell were $4,000.
c. On May 1, 2003, the lender foreclosed on the real estate; the real estate’s estimated fair value and costs to sell remained unchanged from March 31, 2003. The real estate was classified as held for sale under Topic 360, subsequent to foreclosure.
d. At September 30, 2003, the fair value of the property was $65,000. The estimated costs to sell were $3,000.
e. At March 31, 2004, the fair value of the property was $80,000. The estimated costs to sell were $5,000. [Content moved from paragraph 310-40-55-13]
Pending Content:
Transition Date: (P) December 16, 2019; (N) December 16, 2022 I Transition Guidance: 326-10-65-1
This Example illustrates the guidance in Subtopic 310-40. The Example has the following assumptions:
a. At December 31, 20X2, a lender’s net real estate loan receivable was $90,000. The net receivable was comprised of (a) $100,000 principal balance and (b) $10,000 allowance for credit losses due to the deterioration of the borrower’s credit worthiness; the allowance was based on the underlying value of the real estate since the loan is collateral dependent.
b. Between December 31, 20X2 and March 31, 20X3, the borrower did not make principal payments. On March 31, 20X3, the real estate’s estimated fair value was $75,000. The estimated costs to sell were $4,000.
c. On May 1, 20X3, the lender foreclosed on the real estate; the real estate’s estimated fair value and costs to sell remained unchanged from March 31, 20X3. The real estate was classified as held for sale under Topic 360, subsequent to foreclosure.
d. At September 30, 20X3, the fair value of the property was $65,000. The estimated costs to sell were $3,000.
e. At March 31, 20X4, the fair value of the property was $80,000. The estimated costs to sell were $5,000. [Content moved from paragraph 310-40-55-13]
In addition, amend the following pending content for paragraph 310-20-55-51, with a link to transition paragraph 326-10-65-5:
Pending Content:
Transition Date: (P) December 16, 2022; (N) December 16, 2022 I Transition Guidance: 326-10-65-5
This Example illustrates the guidance in Subtopic
310-20 310-40
. The Example has the following assumptions:
a. At December 31, 20X2, a lender’s net real estate loan receivable was $90,000. The net receivable was comprised of (a) $100,000 principal balance and (b) $10,000 allowance for credit losses due to the deterioration of the borrower’s credit worthiness; the allowance was based on the underlying value of the real estate since the loan is collateral dependent.
b. Between December 31, 20X2 and March 31, 20X3, the borrower did not make principal payments. On March 31, 20X3, the real estate’s estimated fair value was $75,000. The estimated costs to sell were $4,000.
c. On May 1, 20X3, the lender foreclosed on the real estate; the real estate’s estimated fair value and costs to sell remained unchanged from March 31, 20X3. The real estate was classified as held for sale under Topic 360, subsequent to foreclosure.
d. At September 30, 20X3, the fair value of the property was $65,000. The estimated costs to sell were $3,000.
e. At March 31, 20X4, the fair value of the property was $80,000. The estimated costs to sell were $5,000. [Content amended as shown and moved from paragraph 310-40-55-13]
310-20-55-52 Paragraphs 310-10-35-16 through 35-17 states that a loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. The lender determined that foreclosure is probable at March 31, 2003, and should measure the impairment based on the fair value of the collateral less estimated costs to sell since the selling costs reduce the cash flows available to satisfy the loan as prescribed under paragraphs 310-10-35-22, 310-10-35-24, and 310-10-35-32. Accordingly, the lender should recognize a loan loss of $19,000 measured as the difference between the carrying value ($90,000) and the fair value less cost to sell ($71,000). Upon foreclosure on May 1, 2003, the application of paragraph 310-40-40-5 results in the measurement of a new cost basis (also $71,000) for long-lived assets received in full satisfaction of a receivable. [Content moved from paragraph 310-40-55-14]
Pending Content:
Transition Date: (P) December 16, 2019; (N) December 16, 2022 I Transition Guidance: 326-10-65-1
On March 31, 20X3, the lender estimates expected credit losses using the fair value of the collateral in accordance with paragraph 326-20-35-2. Accordingly, the lender should record an allowance for credit losses in the cumulative amount of $29,000 ($19,000 incremental amount plus $10,000 recorded previously) measured as the difference between the amortized cost basis ($100,000) and the fair value less cost to sell ($71,000). Upon foreclosure on May 1, 20X3, the application of paragraph 310-40-40-5 results in the measurement of a new cost basis (also $71,000) for long-lived assets received in full satisfaction of a receivable. [Content moved from paragraph 310-40-55-14]
Pending Content:
Transition Date: (P) December 16, 2019; (N) December 16, 2022 I Transition Guidance: 326-10-65-2
On March 31, 20X3, the lender estimates expected credit losses using the fair value of the collateral in accordance with paragraphs 326-20-35-4 through 35-5. Accordingly, the lender should record an allowance for credit losses in the cumulative amount of $29,000 ($19,000 incremental amount plus $10,000 recorded previously) measured as the difference between the amortized cost basis ($100,000) and the fair value less cost to sell ($71,000). Upon foreclosure on May 1, 20X3, the application of paragraph 310-40-40-5 results in the measurement of a new cost basis (also $71,000) for long-lived assets received in full satisfaction of a receivable. [Content moved from paragraph 310-40-55-14]
In addition, amend the following pending content for paragraph 310-20-55-52, with a link to transition paragraph 326-10-65-5:
Pending Content:
Transition Date: (P) December 16, 2022; (N) December 16, 2022 I Transition Guidance: 326-10-65-5
On March 31, 20X3, the lender estimates expected credit losses using the fair value of the collateral in accordance with paragraphs 326-20-35-4 through 35-5. Accordingly, the lender should record an allowance for credit losses in the cumulative amount of $29,000 ($19,000 incremental amount plus $10,000 recorded previously) measured as the difference between the amortized cost basis ($100,000) and the fair value less cost to sell ($71,000). Upon foreclosure on May 1, 20X3, the application of paragraph
310-20-40-5 310-40-40-5
results in the measurement of a new cost basis (also $71,000) for long-lived assets received in full satisfaction of a receivable.
[Content amended as shown and moved from paragraph 310-40-55-14]
310-20-55-53 The fair value less cost to sell decrease to $62,000 as of September 30, 2003, requires the lender to recognize an impairment of $9,000 ($71,000 - $62,000) under Topic 360. While the long-lived asset’s fair value less cost to sell increased $13,000 ($75,000 - $62,000) as of March 31, 2004, the lender’s gain recognition is limited to the cumulative losses recognized and measured under that Topic, or $9,000. The $19,000 of loan impairment losses are excluded from the measurement of cumulative losses under that Topic. [Content moved from paragraph 310-40-55-15]
Pending Content:
Transition Date: (P) December 16, 2019; (N) December 16, 2022 I Transition Guidance: 326-10-65-1
The fair value less cost to sell decrease to $62,000 as of September 30, 20X3, requires the lender to recognize an impairment of $9,000 ($71,000 - $62,000) under Topic 360. While the long-lived asset’s fair value less cost to sell increased $13,000 ($75,000 - $62,000) as of March 31, 20X4, the lender’s gain recognition is limited to the cumulative losses recognized and measured under Topic 360, or $9,000. The $29,000 of credit losses recognized previously under Subtopic 326-20 on financial instruments measured at amortized cost are excluded from the measurement of cumulative losses under Topic 360. [Content moved from paragraph 310-40-55-15]
> > Example 13: Application of Loan Modification Guidance
310-20-55-54 This Example illustrates the guidance in paragraph 310-20-35-9 to determine whether the terms of a modified loan are at least as favorable to the lender as the terms for comparable loans to other customers with similar collection risks who are not refinancing or restructuring a loan with the lender. This Example has the following assumptions.
310-20-55-55 On January 1, 20X1, Entity J originates a 10-year $100,000 consumer loan to an individual with a FICO score of 710. The loan’s stated interest rate is 7 percent. On June 30, 20X3, Entity J modifies the loan to reduce the effective interest rate to 3 percent. At the time of the modification, the borrower’s credit score is 650. Between the loan’s origination date and modification date, interest rates have decreased and the at-market interest rate for a borrower with a credit score of 650 is 5 percent at the date of the modification.
310-20-55-56 On the date of the modification, Entity J compares the effective interest rate on the modified loan with the effective interest rate that it has negotiated for new loans with similar characteristics originated to borrowers with a credit score that approximates 650. Entity J concludes that the effective interest rate on the modified loan (3 percent) is lower than the effective interest rate on a similar new loan (5 percent), and, therefore, Entity J does not have to assess whether the modification is more than minor in accordance with paragraph 310-20-35-11. Instead, the modification would be accounted for as a continuation of the existing loan.