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12.3 Loans and investments — income statement classification
Publication date: 31 May 2022
us Loans & investments guide
The codification does not provide specific guidance on the appropriate income statement classification for certain items included in net income, including the following.
- Unrealized holding gains and losses on equity securities, trading securities, and securities for which the fair value option has been elected. Gains and losses on these items are typically classified as “trading gains and losses” or “other income,” but other presentation may be appropriate.
- For debt securities classified as trading under ASC 320 that are transferred to another category, ASC 320-10-45-7 specifically states that gains and losses that have accumulated before the transfer should be classified consistently with realized gains and losses for the category from which the security is being transferred (and not the category into which it is being transferred).
For certain other items, the codification provides specific guidance on which line in the income statement an item should be recorded, including the following items.
- Interest income – includes amortization of discount or premium as well as loan origination, commitment, and other fees and costs recognized as an adjustment of the effective interest rate
- Credit loss expense – for financial instruments measured at amortized cost and certain off-balance sheet credit exposures, the adjustment performed every period to align the allowance for expected credit losses to management’s current estimate is reported as credit loss expense (or a reversal of credit loss expense, if applicable)
ASC 326-20-45-3 and ASC 326-30-45-3 note that when a discounted cash flow approach is used to estimate expected credit losses, the change in present value from one reporting period to the next may result both from the passage of time and from changes in estimates of the timing or amounts of expected cash flows. Reporting entities are permitted to report the entire change in present value as credit loss expense (or reversal of credit loss expense), or alternatively they might report the change in present value attributable to the passage of time within interest income (see LI 12.7.1.1 and LI 12.7.3.1 for disclosure requirements in case the latter alternative is chosen).
Similarly, credit-related impairment on available-for-sale debt securities should be classified as a credit loss expense on available-for-sale securities.
When using the fair value of collateral to determine the allowance for credit losses for a collateral-dependent financial asset, changes in the fair value of the collateral impact the allowance and are included in credit loss expense.
- Service fee income – includes amortization of commitment fees that are being amortized on a straight-line basis over the commitment period or included in income when the commitment expires
See LI 12.9 for considerations regarding investments in insurance contracts.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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