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4.5 Purchased loans
Publication date: 31 May 2022
us Loans & investments guide
When a loan or group of loans is purchased, the initial investment includes amounts paid to the seller plus any fees paid or less any fees received as part of the acquisition. The difference between the initial investment and the principal amount of the loan should be accounted for as a discount or premium (see LI 6.4.1). All internal costs incurred when acquiring loans or committing to acquire loans should be expensed as incurred.
4.5.1 Impairment of purchased loans
To determine how to measure and account for the impairment of a purchased loan, a reporting entity must first determine whether the loan has experienced a more-than-insignificant deterioration in credit since origination. If it has, it would then be classified as a purchased financial asset with credit deterioration (PCD asset). See LI 9 for more information on PCD assets and the related accounting.
When a reporting entity purchases loans that have not experienced a more-than-insignificant deterioration in credit since origination and therefore do not meet the definition of a PCD asset, it should follow the guidance in the current expected credit loss (CECL) impairment model applicable to originated financial assets. See LI 7 for information on the application of the CECL impairment model.
An entity shall account for purchased financial assets that do not have a more-than-insignificant deterioration in credit quality since origination in a manner consistent with originated financial assets in accordance with paragraphs 326-20-30-1 through 30-10 and 326-20-30-12. An entity shall not apply the guidance in paragraphs 326-20-30-13 through 30-14 for purchased financial assets that do not have a more-than-insignificant deterioration in credit quality since origination.
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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