4.1 Background

Debt is initially recognized on the settlement date (see Section 4.2). There is a presumption that debt issued solely in exchange for cash should be initially recognized at the amount of cash proceeds received (see Section 4.3.4). However, an entity should evaluate debt that is issued in exchange for property, goods, or services to determine whether to initially measure it at (1) its face amount or (2) the present value of the cash flows, discounted by using an imputed interest rate (i.e., at fair value under ASC 820) (see Section 4.3.5). Any difference between the debt’s initial carrying amount and stated principal amount represents a discount or premium (see Section 4.3.6). In addition, any debt for which the issuer elects the fair value option in ASC 815-15 or ASC 825-10 is initially measured at its fair value, with any up-front costs or fees incurred recognized immediately in earnings (see Section 4.4).