If a loan is not accounted for as a debt security, refer to ARM 3560 or PwC's Loans and investments guide if ASU 2016-13 has been adopted.

Loans subject to ASC 310-30 that are acquired individually or in pools through an arm’s-length transaction should be recorded at their acquisition price, which is presumed to be the loans’ fair value. Loans acquired in a business combination should be recorded, as a result of the allocation of the acquisition price pursuant to ASC 805, at their fair value (i.e., the present value of expected cash flows). Valuation allowances or allowance for loan losses should not be recorded at the time of acquisition because the fair value of the loan or debt security presumably includes any risk of uncollectibility.

If the loan is accounted for as a debt security, and if the fair value of the debt security has declined below its amortized cost basis, an entity should determine whether the decline is other-than-temporary, pursuant to ASC 320. See ARM 5010.45 above.

For example, if current information and events suggest that there is a decrease in cash flows expected to be collected (that is, the investor will be unable to collect (1) all of the cash flows that, at the time of the acquisition, it expected it would collect plus (2) any additional cash flows that it expected to collect as a result of post-acquisition changes in the cash flow estimate), the investor should presume that there is an other-than-temporary impairment. In determining whether there has been a decrease in cash flows, the investor should consider both the timing and the amount of cash flows that it expects to collect.

A change in cash flows expected to be collected that is due solely to a change in the interest rate on a variable-rate debt security should not be considered an other-than-temporary impairment. Rather, this change should be treated as a decrease in the accretable yield.

In the context of loans falling within the scope of ASC 310-30, the concept of "all cash flows originally expected to be collected by the investor plus any additional cash flows expected to be collected arising from changes in estimate after acquisition" requires an investor to recognize a loss contingency by charging that contingency to current income if there is a subsequent decrease in the estimate of the cash flows that the investor expects to collect.

Under ASC 320, when the investor recognizes a write-down for an other-than-temporary impairment, the security would have a new amortized cost basis. Any subsequent appreciation in an available-for-sale security’s fair value would be recognized in other comprehensive income.