4.2 Recognition Date

In practice, debt liabilities are initially recognized on the settlement date (i.e., the date on which the debtor receives the related proceeds such as cash or other financial or nonfinancial assets) as opposed to the date on which the debt is priced or the parties enter into a binding agreement to issue it.

If an entity enters into an agreement that requires or permits it to issue debt in the future, it should consider whether it must recognize that agreement as a derivative under ASC 815-10 until the debt is funded. Usually, such contracts are not within the scope of the accounting requirements for derivatives because ASC 815 contains a scope exception for loan commitments (see Section 2.3.3), and the contract might not meet the net settlement characteristic in the definition of a derivative (see Section 8.3.4.4). If an entity incurs costs and fees associated with a future debt issuance or a commitment that requires or permits it to issue debt in the future, it may need to capitalize such costs and fees as an asset (see Chapter 5).