- US GAAP
ASC 310 comprises four Subtopics (Overall, Nonrefundable Fees and Other Costs, Loans and Debt Securities Acquired with Deteriorated Credit Quality, and Troubled Debt Restructurings by Creditors). Below is an overview of each Subtopic.
ASC 310-10 provides general guidance for receivables and notes that receivables arise from credit sales, loans, or other transactions. This Subtopic further discusses acquisition, development, and construction arrangements and provides “guidance for determining whether a lender should account for an acquisition, development, and construction arrangement as a loan or as an investment in real estate or a joint venture.”
ASC 310-20 notes that this Subtopic provides “guidance on the recognition, measurement, derecognition, and disclosure of nonrefundable fees, origination costs, and acquisition costs associated with lending activities and loan purchases.”
ASC 310-30 notes:
This Subtopic provides recognition, measurement, and disclosure guidance regarding loans acquired with evidence of deterioration of credit quality since origination acquired by completion of a transfer for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable.
A loan or group of loans is always transferred at a price less than its contractually required payments receivable. The difference between the price and the contractually required payments receivable is attributable to the time value of money and may also be attributable to any of the following:
- Changes in interest rates between the loan’s origination and transfer dates
- Changes in credit quality of the borrower between the loan’s origination and transfer dates
- Other factors
- Some combination of all three reasons.
Deterioration may be evidenced by such sources as Fair Isaac Company (FICO) scores (an automated rating process for credit reports), downgrading, decline in value of collateral, or past-due status.
ASC 310-40 provides guidance on the “measurement, derecognition, disclosure, and implementation guidance issues concerning troubled debt restructurings focused on the creditor’s records.” ASC 470-60 discusses the debtor’s accounting for troubled debt restructurings.