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A line of credit is an extension of credit to a borrower that can be accessed or “drawn down” at any time at the reporting entity’s discretion. Borrowings under a line of credit may be used, repaid, and reborrowed in different amounts and at different intervals. A reporting entity pays the lender a commitment fee in exchange for the lender’s commitment to lend to the reporting entity under the line of credit or revolving-debt arrangement for the term of the arrangement.
Costs associated with entering into a revolving line of credit or revolving-debt arrangement are costs incurred in exchange for access to capital. That is, the fees are paid regardless of whether the funds are ever drawn down. As such, we believe these costs meet the definition of an asset and should be recorded as such on the balance sheet (as opposed to the contra liability presentation used for debt issuance costs) and amortized on a straight-line basis over the contractual term of the arrangement (i.e., the access period) regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. This accounting is consistent with the view expressed by the SEC in ASC 835-30-S45-1.
Other views may be acceptable. For instance, in the limited circumstances when a reporting entity draws down on a line of credit and does not intend to repay the borrowing until the contractual maturity of the arrangement (i.e., the borrowing is treated like a term loan), we believe the portion of the costs related to that draw down could be presented as a direct deduction from the carrying value of the debt when drawn. Under this approach, the reporting entity should amortize the costs for the portion associated with the draw down using the effective interest method (as is done for a term loan).
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