# ASC 310-20-55: Receivables — Nonrefundable Fees and Other Costs — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/310/20/#55-implementation-guidance-and-illustrations) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:912f11e26011e8c45338a6b9787d1cf503320b028c2fc70ae3f7a95693777d59 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 310-20-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/310/20/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [310-20-55-1](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:fc893dcb871d6f60660f9517bd549762f76494b6bed107740c78702cd5952958 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section provides guidance concerning certain fees and costs related to various forms of lending. ##### [310-20-55-2](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:5448a18920c83f8566b0f1baf03d509bad2dae26f2cf2042da4a19ae1d6895dd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In automotive lending, it is common practice for a lending institution to pay a fee to an auto dealer for introducing a customer that requires financing for a completed auto sale. Generally, the lender pays the dealer up front an amount equal to the present value of the interest rate differential between the lender's standard [loan](https://asc.understandingaccounting.org/glossary/l/#loan "A contractual right to receive money on demand or on fixed or determinable dates that is recognized as an asset in the creditor's statement of financial position. Examples include but are not limited to accounts receivable (with terms exceeding one year) and notes receivable. This definition encompasses loans accounted for as debt securities.") rate and the rate charged to the auto dealer's customer with the expectation of recovering this amount from the borrower over time. Although this origination cost is recoverable from the borrower, it is not excluded from the scope of this Topic. This Topic does not apply to costs that are incurred by a lender in transactions with independent third parties if the lender bills those costs directly to the borrower. In this case, however, the payments to the auto dealer are not billed directly to the borrower. Instead, they are recovered from the borrower through the interest rate charged to the borrower, as are the lender's other costs. (See the definition of the term for what constitutes [incremental direct costs](https://asc.understandingaccounting.org/glossary/i/#incremental-direct-costs "Costs to originate a loan that have both of the following characteristics: Result directly from and are essential to the lending transaction Would not have been incurred by the lender had that lending transaction not occurred.").) ##### [310-20-55-3](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:1fc091d25f53d40ac9399e048f488e9abe2955dd755bd322ee85f5f862b932c2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that the amount of a commitment fee for a line of credit or credit facility is determined retrospectively as a percentage of the line of credit or commitment available but unused in a previous period. Also assume that the fee is paid periodically during the life of the facility or commitment, but the costs are incurred when the lender establishes the facility or commitment. How a lender should account for those costs depends on several factors. Costs that meet the criteria for [direct loan origination costs](https://asc.understandingaccounting.org/glossary/d/#direct-loan-origination-costs "Direct loan origination costs represent costs associated with originating a loan. Direct loan origination costs of a completed loan shall include only the following: Incremental direct costs of loan origination incurred in transactions with independent third parties for that loan Certain costs directly related to specified activities performed by the lender for that loan. Those activities include all of the following: Evaluating the prospective borrower's financial condition Evaluating and recording guarantees, collateral, and other security arrangements Negotiating loan terms Preparing and processing loan documents Closing the transaction. The costs directly related to those activities shall include only that portion of the employees' total compensation and payroll-related fringe benefits directly related to time spent performing those activities for that loan and other costs related to those activities that would not have been incurred but for that loan. See Section 310-20-55 for examples of items.") under the definition of that term shall be deferred and amortized based on the terms of the line of credit or commitment facility. If the commitment agreement is a revolving line of credit, the qualifying costs shall be recognized in income on a straight-line basis over the period that the revolving line of credit is active. If the loan agreement provides the borrower with the option to convert the revolving line of credit to a term loan, the lender shall recognize the costs on a straight-line basis over the combined life of the revolving line of credit and term loan. If the line of credit or commitment facility is not a revolving line of credit, the costs shall be deferred and amortized on a straight-line basis over the commitment period unless the likelihood that the commitment will be exercised is remote, in which case any net costs shall be charged to expense immediately. ##### [310-20-55-4](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:2f0ff8826cf6c7fead6f9aa1798765081a5fcca0c1af7a6952e8d3a196e978c4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Some lenders offer loan commitments known as multioption facilities. Those facilities contain several credit structures that borrowers may use in any combination. The lenders may receive a variety of fees in connection with that type of facility. Some fees may be yield related (for example, fees for providing back-up facilities or revolvers), while others may be labeled as compensation for services rendered (for example, management fees or note placement fees). Generally all fees, in accordance with paragraph [310-20-35-3](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-3) should be deferred. For amortization purposes, fees received for a multioption facility shall be allocated to each product in the facility because the amortization of certain fees must be reported as service fee income while the amortization of other fees must be reported as interest income. If a portion of the fee is for a line of credit product, the fee allocated shall be recognized in income on a straight-line basis over the period the revolving line of credit is active. If the likelihood that a commitment provided under a multioption facility will be exercised is remote, paragraph [310-20-35-3(a)](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-3) requires that the fee be recognized over the commitment period on a straight-line basis as service fee income. ##### [310-20-55-5](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:ccd890ae9312a8c14213c6d310c02abbc0e1adfd626b745fd1a71fc448df80da Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a typical credit card solicitation effort, an issuer engages an independent third party to solicit and obtain new customers. For a fee, the solicitor prepares and mails the promotional offer to a group of preselected consumers (for example, 1 million consumers). The expected response rate for new cardholders is generally 1 to 2 percent. Although only a small percentage of the total solicitation effort is expected to be successful, the portion of the solicitation performed by an independent third party that is allocable to successful efforts should not be deferred as direct loan origination costs under the definition of that term. Incremental direct costs to originate a loan are costs that the lender would not have incurred if that lending transaction had not occurred. In this example, the lender would have incurred all of the solicitation costs regardless of the number of credit cards issued. Accordingly, all costs in this example should be charged to expense. ##### [310-20-55-6](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:1a06b757a5e3d003d6f604558431877de5cc635b52d3fc6d42ed54c879b6601c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Loans may be offered for some initial period at an interest rate below the current market rate with the interest rate scheduled to adjust to a market rate after the initial discount period. Amortization of net loan fees and costs is based on the interest method over the life of the loan and limited by the provisions of paragraph [310-20-35-18(a)](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-18) and [310-20-35-18(c)](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-18) during the discount period. Thereafter, the provisions of paragraph [310-20-35-18(c)](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-18) are applicable. See Examples 5 and 6 (paragraphs [310-20-55-33 through 55-37](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-33) ) for illustrations. ##### [310-20-55-7](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:32f0ac46f780d263dbb18897d4a08f4c71aa8aef579a3e530f01bfd4d051d008 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that an institution originates adjustable rate mortgages that have a below-market interest rate in the first year that subsequently will be adjusted to a market rate in the second year. Also assume that the adjustable rate mortgages are sold to an independent third party at a discount reflecting the below-market interest rate in Year 1. Paragraph [310-20-35-15](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-15) provides that the initial investment frequently differs from the related loan's principal amount at the date of purchase. This difference shall be recognized as an adjustment of yield over the life of the loan. The buyer should recognize the discount as an adjustment of yield over the life of the loan in accordance with paragraph [310-20-35-18(a)](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-18) and [310-20-35-18(c)](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-18). The purchase discount should be amortized to create a constant effective yield; thus, the majority of the discount would be recognized as interest income in the first year. ##### [310-20-55-8](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:f6ac825a4b1dc2922b7304e75663871197dcea1f36846a934c3759f698f79b18 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following amortization methods shall be applied to the associated types of loan arrangements: 1. a Negative amortization loans: interest method 2. b Biweekly mortgages: interest method 3. c Line of credit loans or arrangements with similar characteristics: straight-line method 4. d Overdraft protection loans: straight-line method 5. e Home equity loans: generally the interest method, but the straight-line method may be used if the arrangement has the characteristics of a revolving line of credit 6. f Acquisition, development, and construction arrangements accounted for as loans before completion of funding, as follows: 1. 1 Single project: interest method (For loan contracts in which the timing and amount of payments are not specified, estimates must be made to apply the interest method.) 2. 2 Multiple projects with partial drawdowns and payments: generally the interest method, but the straight-line method may be used if the arrangement has the characteristics of a revolving line of credit. ##### [310-20-55-9](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-9) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:c6e3c9a840326be11712c4047a368ee5249031230a4fc4971c84a52f91bd409a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Independent third parties generally possess the following characteristics: 1. a They are not employees of the lender. 2. b They are not receiving employee benefits of the lender. 3. c The party is not under the [control](https://asc.understandingaccounting.org/glossary/c/#control "The possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an entity through ownership, by contract, or otherwise.") of the lender. 4. d Generally, the party also would provide similar services to other entities unrelated to the lender and there would not be an agreement between the lender and the party that precludes the party from providing similar services to other entities. ##### [310-20-55-10](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-10) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:8da7274d9f1c5d8bc4c6871f4ba235445c74fd11b07061130a4c89fbab95c8e5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In determining if an entity that provided loan origination-related services on behalf of the lender could be considered an independent third party if the lender has an ownership or equity interest in the entity, such ownership interest shall be evaluated based on the level of ownership and influence that could be imposed. Generally, the existence of an ownership interest indicates a relationship that would not qualify as an independent third party. A nominal passive investment from the standpoint of both the lender and the provider of service probably would not affect the provider's independence. ##### [310-20-55-11](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-11) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:b0aecb8348472c560bee48558e62b6a7e9610980eec010c62882f6f0aac7f864 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples of other direct loan origination costs that may be deferred as such under the definition of that term for loans that are granted include all of the following: 1. a Reimbursement of costs for air travel, hotel accommodations, automobile mileage, and similar costs incurred by personnel relating to the specified activities 2. b Costs of itemized long-distance telephone calls related to loan underwriting 3. c Reimbursement for mileage and tolls to personnel involved in on-site reviews of collateral before the loan is granted. ##### [310-20-55-12](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-12) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:e25119f8afe6ea63e9872621e19578ac1c140e37a8cd1e96cec20d5ad3355b94 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Payroll-related fringe benefits include any costs incurred for employees as part of the total compensation and benefits program. Examples of such benefits include all of the following: 1. a Payroll taxes 2. b Dental and medical insurance 3. c Group life insurance 4. d Retirement plans 5. e 401(k) plans 6. f Stock compensation plans, such as stock options and stock appreciation rights 7. g Overtime meal allowances. ##### [310-20-55-13](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-13) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:0c8f5517feb4bfd9bdde39b9920f749220500cb5af254c21ca2af4777ad81f5a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The portion of total compensation of executive employees that relates directly to the time spent approving successful loans prior to funding may be deferred as direct loan origination costs under the definition of that term. For example, the amount of compensation allocable to time spent by members of a loan approval committee is a component of direct loan origination costs. ##### [310-20-55-14](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-14) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:50cef69e765e69bf1e8863e1b7ca0becbad8b4ded4cd66b0fff8846531a41761 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [310-20-25-3](https://asc.understandingaccounting.org/asc/310/20/#310-20-25-3) specifies that equipment costs (for example, a lender's data processing equipment dedicated to originating loans), depreciation, and maintenance must be charged to expense as incurred. Those costs do not meet the criteria for deferral as direct loan origination costs under the definition of that term as they would have been incurred whether or not a loan was originated. ##### [310-20-55-15](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-15) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:1c553d27df2d9153c81c1d66a26134afd6f64aba68bbab8a952a53cc4d0733b0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following are examples of specified activities contemplated as direct loan origination costs under the definition of that term: 1. a Loan counseling, such as discussing alternative borrowing arrangements with borrowers, and negotiating terms 2. b Application processing 3. c Appraisal 4. d Initial credit analysis 5. e Initial credit investigation 6. f Quality control review performed during the underwriting period 7. g Direct approval processing 8. h Loan evaluation and approval committees (all activities involved in origination decisions) 9. i Loan closing. ##### [310-20-55-16](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-16) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:947d00e3f79c76d45f28d360b061ce7794395f502a439140b342242a34cdd098 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a lender has fees and costs on a construction loan (assuming the arrangement does not have the characteristics of a revolving line of credit) when the lender also has made a commitment for the permanent financing that the lender believes has more than a remote probability of being exercised, the fees and costs should be accounted for in the following manner. For loan contracts in which the timing and amount of payments are not specified, estimates must be made by the lender to apply the interest method. The net amount of fees received and costs that qualify as direct loan origination costs under the definition of that term should be deferred and recognized as an adjustment of yield over the combined life of the construction and permanent loans. If the commitment to provide permanent financing expires unused, any unamortized fees and costs should be recognized as income at that time. ##### [310-20-55-17](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-17) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:cddea100b768627d63400bc70e3ffadab71b8e5c1a6c6bca424eb7f05cbff928 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that a lender grants a loan that matures in 90 days and collects a nonrefundable fee that approximates market. Assume also that any future extension of credit would be evaluated at maturity of the original loan and would include an extension fee at that time. Based on experience, the lender anticipates that the credit will be extended an additional 90 days, however; the lender is not committed to provide an extension. The fee, net of qualifying origination costs, should be deferred and amortized over the original 90-day loan contract. ##### [310-20-55-18](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-18) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:55b78da98bc64f3ba32d06fb60896750478590377135804557a50a9d2c2278ce Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a lender originates a 10-year loan with a callable feature after 3 years, the fees should be amortized over the 10-year contract life. ##### [310-20-55-18A](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-18A) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:71c8e43c3d01842d9e22a8b9145c81cc27ba3cde728641a955e34776af74b652 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance addresses the following circumstance: In connection with a loan refinancing or restructuring, a debtor, with the creditor's approval, sells the collateral, which has a fair value less than the creditor's net investment in the related loan, and invests the proceeds in a series of zero coupon bonds that are received and held by the creditor as collateral for the newly restructured loan. The bonds will mature at a value equal to each year's debt service requirement under the newly restructured terms. Specifically, the issue is whether the sale of collateral, the purchase of the zero coupon bonds, and their receipt by the creditor as collateral require the creditor to recognize a loss equal to the amount by which the net investment in the loan exceeds the fair value of the zero coupon bonds. ##### [310-20-55-18B](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-18B) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:dc870ce94e434168e15a7e89cbcc216bb72b74cfcefe76e9293c3664cf4dacae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The excess of the [amortized cost basis](https://asc.understandingaccounting.org/glossary/a/#amortized-cost-basis "The amortized cost basis is the amount at which a financing receivable or investment is originated or acquired, adjusted for applicable accrued interest, accretion, or amortization of premium, discount, and net deferred fees or costs, collection of cash, writeoffs, foreign exchange, and fair value hedge accounting adjustments.") satisfied over the fair value less cost to sell (as that term is used in paragraph [360-10-35-43](https://asc.understandingaccounting.org/asc/360/10/#360-10-35-43)) of assets received is a loss to be recognized. ##### [310-20-55-18C](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-18C) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:e8002c1631487333313003ed29abb45114ea59e9c2fae5fd6dc686467fedd564 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Such losses, to the extent they are not offset against allowances for uncollectible accounts or other valuation accounts, shall be included in measuring net income for the period. ##### [310-20-55-18D](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-18D) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:c1f4ffdc97f6840e3aa4bba0efc212055845e179483957f8316b8ddf616784f8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, if the creditor has the right to sell or pledge the collateral: 1. a Paragraph [860-30-45-1](https://asc.understandingaccounting.org/asc/860/30/#860-30-45-1) requires that the debtor reclassify the collateral and report it in its statement of financial position separately from other assets not so encumbered. 2. b Paragraph [860-30-50-1A](https://asc.understandingaccounting.org/asc/860/30/#860-30-50-1A) requires, in part, that the creditor disclose the fair value of that collateral and of the portion that it has sold or repledged. ##### [310-20-55-18E](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-18E) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:d1fb0c4141d25728adb04466eead3087774d50a5ccc9bb22e2a2722118c5b1f3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the creditor does not have the right to sell or pledge the collateral, paragraph [860-30-50-1A](https://asc.understandingaccounting.org/asc/860/30/#860-30-50-1A) requires that the debtor disclose information about that collateral. ##### [310-20-55-18F](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-18F) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:1f598ec50a2b5cf69b804270557426378acac8da9db1c674edf8efc7859425d0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A creditor is considered to have received physical possession (resulting from an in substance repossession or foreclosure) of residential real estate property collateralizing a consumer mortgage loan only upon the occurrence of either of the following: 1. a The creditor obtains legal title to the residential real estate property upon completion of a foreclosure. A creditor may obtain legal title to the residential real estate property even if the borrower has redemption rights that provide the borrower with a legal right for a period of time after a foreclosure to reclaim the real estate property by paying certain amounts specified by law. 2. b The borrower conveys all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The deed in lieu of foreclosure or similar legal agreement is completed when agreed-upon terms and conditions have been satisfied by both the borrower and the creditor. #### Illustrations ##### [310-20-55-19](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-19) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:1dffbba0a5f24cab2d775c29ac2720bce27ad553816e8f1e84abff3105f5a53d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Examples and estimates are illustrative only and are not intended to modify or limit in any way the provisions of this Subtopic. All Examples assume that principal and interest payments are made on the last day of the year. ##### [310-20-55-20](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-20) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:d1091884e2b313e8684eec99ac08bbd14ad281b6f303581e9b0ff4b742a89aed Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [310-20-35-17 through 35-24](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-17) , displaying amortization under the interest method using the contractual payment terms and assuming no prepayments. This Example has the following assumptions. ##### [310-20-55-21](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-21) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:d3e469561669f62c39957c750c0c9f70c4d750fe2ad457d05a1b80403e8f2356 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On January 1, 19X7, Entity A originates a 10-year $100,000 loan with a 10 percent stated interest rate. The contract specifies equal annual payments of $16,275 through December 31, 19Y6. The contract also specifies that no penalty will be charged for prepayments of the loan. Entity A charges a 3 percent ($3,000) nonrefundable fee to the borrower and incurs $1,000 in direct loan origination costs (attorney fees, appraisal, title insurance, wages and payroll-related fringe benefits of employees performing origination activities, outside broker's fee). The carrying amount of the loan is computed as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-56904730-3B9C-40A4-A241-1896F5787F4B-low.gif) Loan principal " $100,000 " Origination fees " (3,000)" Direct loan origination costs " 1,000 " Carrying amount of loan " $98,000 " ##### [310-20-55-22](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-22) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:6541eb62ac5618e401b1ebd6b2c8057389cdc2539f24ee0867a5e069d99a9d25 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A accounts for this loan using contractual payments to apply the interest method of amortization. In calculating the effective rate to apply the interest method, the discount rate necessary to equate 10 annual payments of $16,275 to the initial carrying amount of $98,000 is approximately 10.4736 percent. The amortization if no prepayment occurs is shown in the following table. - ![](https://asc.understandingaccounting.org/asc-img/GUID-76580A8C-6F52-454C-932E-D0337E08517A-low.gif) (1) (2) (3) (4) (5) (6) (7) Year Cash (Out) Inflow Stated Interest Amortization Interest Income Remaining Principal Unamortized Net Fees Carrying Amount " $(98,000)" " $100,000 " " $98,000 " 1 " 16,275 " " $10,000 " $264 " $10,264 " " 93,725 " " $1,736 " " 91,989 " 2 " 16,275 " " 9,373 " 262 " 9,635 " " 86,823 " " 1,474 " " 85,349 " 3 " 16,275 " " 8,682 " 257 " 8,939 " " 79,230 " " 1,217 " " 78,013 " 4 " 16,275 " " 7,923 " 248 " 8,171 " " 70,878 " 969 " 69,909 " 5 " 16,275 " " 7,088 " 234 " 7,322 " " 61,691 " 735 " 60,956 " 6 " 16,275 " " 6,169 " 215 " 6,384 " " 51,585 " 520 " 51,065 " 7 " 16,275 " " 5,159 " 189 " 5,348 " " 40,469 " 331 " 40,138 " 8 " 16,275 " " 4,047 " 157 " 4,204 " " 28,241 " 174 " 28,067 " 9 " 16,275 " " 2,824 " 116 " 2,940 " " 14,790 " 58 " 14,732 " 10 " 16,275 " " 1,485 " (a) 58 " 1,543 " - - - Total amortization " $2,000 " Computations: Column (1)—Contractual payments Column (2)—Column (5) for prior year × the loan's stated interest rate (10%) Column (3)—Column (4) - Column (2) Column (4)—Column (7) for prior year × the effective interest rate (10.4736%) (b) Column (5)—Column (5) for prior year - (Column \[1\] - Column \[2\]) Column (6)—Initial net fees - amortization to date Column (7)—Column (5) - Column (6) (a) $6 rounding adjustment. (b) "The effective interest rate is the discount rate that equates the present value of the future cash inflows to the initial net cash outflow of $98,000." ##### [310-20-55-23](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-23) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:499074f9c906093c25a015fa13473b6718115a642589c3c9a8339e6d3f7a152f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [310-20-35-17 through 35-24](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-17) , displaying amortization under the interest method using contractual payment terms with full prepayment in the third year. This Example has the following assumptions. ##### [310-20-55-24](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-24) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:20bf02b3784859d9ab5785ea35ee9263a051301b42158a291eeae889af4c529a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On January 1, 19X7, Entity B originates a 10-year $100,000 loan with a 10 percent stated interest rate. The contract specifies equal annual payments of $16,275 through December 31, 19Y6. The contract also specifies that no penalty will be charged for prepayments of the loan. Entity B charges a 3 percent ($3,000) nonrefundable fee to the borrower and incurs $1,000 in direct loan origination costs. ##### [310-20-55-25](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-25) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:6da3daa44d5e072222970370b0848e3f2b93b7398dd5b37c5b9f5c74ffec4a00 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity B accounts for this loan using contractual payments to apply the interest method of amortization. The amortization if the borrower prepays the remaining principal at the end of Year 3 is shown in the following table. - ![](https://asc.understandingaccounting.org/asc-img/GUID-F63C2128-A7C7-4383-952F-2B5C0C7DC159-low.gif) (1) (2) (3) (4) (5) (6) (7) Year Cash (Out) Inflow Stated Interest Amortization Interest Income Remaining Principal Unamortized Net Fees Carrying Amount " $(98,000)" " $100,000 " " $98,000 " 1 " 16,275 " " $10,000 " $264 " $10,264 " " 93,725 " " $1,736 " " 91,989 " 2 " 16,275 " " 9,373 " 262 " 9,635 " " 86,823 " " 1,474 " " 85,349 " 3 " 95,505 " " 8,682 " " 1,474 " " 10,156 " - - - Total amortization " $2,000 " Computations: Column (1)—Contractual payments + prepayments Column (2)—Column (5) for prior year × the loan's stated interest rate (10%) Column (3)—Column (4) - Column (2) "Column (4)—Column (7) for prior year × the effective interest rate (10.4736%) plus in year 3 an adjustment of $1,217 representing the unamortized net fees recognized when the loan is paid in full." Column (5)—Column (5) for prior year - (Column \[1\] - Column \[2\]) Column (6)—Initial net fees - amortization to date Column (7)—Column (5) - Column (6) ##### [310-20-55-26](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-26) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:ff0fee60e01b8cdcc42b1e0766685eae7373c9b569a7ecfa806ee6351d97d498 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraph [310-20-35-26](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-26), displaying amortization under the interest method using the anticipated prepayment patterns for a large number of loans. This Example has the following assumptions. ##### [310-20-55-27](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-27) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:303b0eb21e12aba42fa6cd46da916640b162cc060c98b1f023835fa268edd2d7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On January 1, 19X7, Entity C originates 1,000 10-year $10,000 loans with 10 percent stated interest rates. Each contract specifies equal annual payments through December 31, 19Y6. The contracts also specify that no penalty will be charged for prepayments. Entity C charges each borrower a 3 percent ($300) fee and incurs $100 in direct origination costs for each loan. The carrying amount of the loans is computed as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-853AEE6D-ADF2-42ED-B6C4-2E9B8E88E13A-low.gif) Loan principal amounts " $10,000,000 " Origination fees " (300,000)" Direct loan origination costs " 100,000 " Carrying amount of loans " $9,800,000 " ##### [310-20-55-28](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-28) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:be348d742d2e66567ad8ed9b51fd7bbf36fb0a1cfb70af6f32fe7d5cdb474614 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity C chooses to account for this large number of loans using anticipated prepayment patterns to apply the interest method of amortization. Entity C estimates a constant prepayment rate of 6 percent per year, which is consistent with Entity C's prior experience with similar loans and Entity C's expectation of ongoing experience. The amortization when prepayments occur as anticipated is shown in the following table. - ![](https://asc.understandingaccounting.org/asc-img/GUID-F3514511-AC9C-4FC1-9F00-BD87EBD4BACD-low.gif) (1) (2) (3) (4) (5) (6) (7) Year Cash (Out) Inflow Stated Interest Amortization Interest Income Remaining Principal Unamortized Net Fees Carrying Amount " $(9,800,000)" " $10,000,000 " " $9,800,000 " 1 " 2,227,454 " " $1,000,000 " " $35,141 " " $1,035,141 " " 8,772,546 " " $164,859 " " 8,607,687 " 2 " 2,049,623 " " 877,255 " " 31,946 " " 909,201 " " 7,600,178 " " 132,913 " " 7,467,265 " 3 " 1,880,619 " " 760,018 " " 28,724 " " 788,742 " " 6,479,577 " " 104,189 " " 6,375,388 " 4 " 1,719,716 " " 647,958 " " 25,453 " " 673,411 " " 5,407,819 " " 78,736 " " 5,329,083 " 5 " 1,566,144 " " 540,782 " " 22,111 " " 562,893 " " 4,382,457 " " 56,625 " " 4,325,832 " 6 " 1,419,028 " " 438,246 " " 18,677 " " 456,923 " " 3,401,675 " " 37,948 " " 3,363,727 " 7 " 1,277,230 " " 340,168 " " 15,131 " " 355,299 " " 2,464,613 " " 22,817 " " 2,441,796 " 8 " 1,138,934 " " 246,461 " " 11,458 " " 257,919 " " 1,572,140 " " 11,359 " " 1,560,781 " 9 " 1,000,180 " " 157,214 " " 7,646 " " 164,860 " " 729,174 " " 3,713 " " 725,461 " 10 " 802,091 " " 72,917 " " 3,713 " " 76,630 " - - - Total amortization " $200,000 " Computations: Column (1)—Contractual payments + 6% of Column (5) for the prior year (except in year 10) Column (2)—Column (5) for prior year × the loan's stated interest rate (10%) Column (3)—Column (4) - Column (2) Column (4)—Column (7) for the prior year × the effective interest rate (10.5627%) Column (5)—Column (5) for prior year - (Column \[1\] - Column \[2\]) Column (6)—Initial net fees - amortization to date Column (7)—Column (5) - Column (6) ##### [310-20-55-29](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-29) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:5f5c06c976257a35b74ed32332596eac1225a46a4249ae3d9945d869fe98eeeb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraph [310-20-35-26](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-26), displaying amortization under the interest method using anticipated prepayment patterns with actual prepayment experience that differs from the anticipated amounts. This Example has the following assumptions. ##### [310-20-55-30](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-30) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:2e02a8362975775cd3a3a3c3efc1c195964aad49ae3626032a71314e849487ac Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On January 1, 19X7, Entity D originates 1,000 10-year $10,000 loans with 10 percent stated interest rates. Each contract specifies equal annual payments through December 31, 19Y6. The contracts also specify that no penalty will be charged for prepayments. Entity D charges each borrower a 3 percent ($300) fee and incurs $100 in direct origination costs for each loan. ##### [310-20-55-31](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-31) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:64e89b9162dfa35928dbc9614ec26a681848fe3dcfd5794acaad212c277750ca Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity D chooses to account for this portfolio of loans using anticipated prepayment patterns to apply the interest method of amortization. Entity D estimates a constant prepayment rate of 6 percent per year, which is consistent with Entity D's prior experience with similar loans and Entity D's expectation of ongoing experience. ##### [310-20-55-32](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-32) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:7954e150b0024250cfa34aa16661c87cb1d13534b8e2aedbca9151ff507e4b59 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table illustrates the adjustment required by paragraph [310-20-35-26](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-26) of this Subtopic when an entity's actual prepayment experience differs from the amounts anticipated. The loans have actually prepaid at a rate of 6 percent in Years 1 and 2 and 20 percent in Year 3, and based on the new information at the end of Year 3, Entity D revises its estimate of prepayment experience to anticipate that 10 percent of the loans will prepay in Year 4 and 6 percent of the loans will prepay in remaining years. The carrying amount of the loans at the end of Year 3 is adjusted to the amount that would have existed had the new effective yield been applied since January 1, 19X7. Included in amortization in Year 3 is an adjustment for the difference in the prior effective yield and the new effective yield applied to amounts outstanding in Years 1 and 2. Amortization in Years 4-10 assumes the new estimates of prepayment experience occur as anticipated. - ![](https://asc.understandingaccounting.org/asc-img/GUID-E126EECA-1DEF-4B94-95CF-60816F591255-low.gif) (1) (2) (3) (4) (5) (6) (7) Year Cash (Out) Inflow Stated Interest Amortization Interest Income Remaining Principal Unamortized Net Fees Carrying Amount " $(9,800,000)" " $10,000,000 " " $9,800,000 " 1 " 2,227,454 " " $1,000,000 " " $35,141 " " $1,035,141 " " 8,772,546 " " $164,859 " " 8,607,687 " 2 " 2,049,623 " " 877,255 " " 31,946 " " 909,201 " " 7,600,178 " " 132,913 " " 7,467,265 " 3 " 2,944,644 " " 760,018 " " 41,951 " " 801,969 " " 5,415,552 " " 90,962 " " 5,324,590 " 4 " 1,653,939 " " 541,555 " " 23,294 " " 564,849 " " 4,303,168 " " 67,668 " " 4,235,500 " 5 " 1,246,229 " " 430,317 " " 18,998 " " 449,315 " " 3,487,256 " " 48,670 " " 3,438,586 " 6 " 1,129,164 " " 348,726 " " 16,050 " " 364,776 " " 2,706,818 " " 32,620 " " 2,674,198 " 7 " 1,016,331 " " 270,682 " " 13,005 " " 283,687 " " 1,961,169 " " 19,615 " " 1,941,554 " 8 " 906,285 " " 196,117 " " 9,849 " " 205,966 " " 1,251,001 " " 9,766 " " 1,241,235 " 9 " 795,875 " " 125,100 " " 6,574 " " 131,674 " " 580,226 " " 3,192 " " 577,034 " 10 " 638,249 " " 58,023 " " 3,192 " " 61,215 " - - - Total amortization " $200,000 " Computations: Column (1)—Contractual payments + prepayments Column (2)—Column (5) for prior year × the loan's stated interest rate (10%) Column (3)—Column (4) - Column (2) "Column (4)—Column (7) for the prior year × the effective rate (10.5627% for years 1 and 2, and 10.6083% for years 3-10, + an adjustment of $8,876 in year 3 representing the cumulative effect (a) applicable to years 1 and 2 of changing the estimated effective rate)" Column (5)—Column (5) for prior year - (Column \[1\] - Column \[2\]) Column (6)—Initial net fees - amortization to date Column (7)—Column (5) - Column (6) (a) An adjustment would also be required if the level of prepayments realized was less than anticipated. ##### [310-20-55-33](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-33) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:5de6363203f7d1cc714c85e163114dd2bdbb07c432d91d8579d40727dad3fe91 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraph [310-20-35-18(a)](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-18), displaying amortization under the interest method. The effective yield is used to recognize an amount in excess of net fees for the loan with an increasing stated rate. The excess recognized is permissible only to the extent that the loan agreement provides for a prepayment penalty that is effective through the loan term. This Example has the following assumptions. ##### [310-20-55-34](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-34) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:f5c57561b574254200b690caa11394173495f4c71ef2d51ad3854662b426431b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity E grants a 10-year $100,000 loan with an 8 percent stated interest rate in Year 1 and 10 percent in Years 2-10. Entity E receives net fees of $1,000 related to this loan. The contract specifies that the borrower must pay a penalty equal to 1 percent of any principal prepaid. Application of the effective yield to recognize an amount in excess of net fees is appropriate for a loan with an increasing stated interest rate only to the extent that the loan agreement provides for a prepayment penalty that is effective throughout the loan term. The loan would be accounted for as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-7E1489B8-55D0-48DD-9429-92AB5DEBD79B-low.gif) (1) (2) (3) (4) (5) (6) (7) (8) Year Cash (Out) Inflow Stated Interest Amortization Interest Income Remaining Principal Unamortized Net Fees (a) Carrying Amount Settlement Amount " $(99,000)" " $100,000 " " $99,000 " 1 " 14,903 " " $8,000 " " $1,710 " " $9,710 " " 93,097 " $(710) " 93,807 " " $94,028 " 2 " 16,165 " " 9,310 " (108) " 9,202 " " 86,242 " (602) " 86,844 " " 87,104 " 3 " 16,165 " " 8,624 " (106) " 8,518 " " 78,701 " (496) " 79,197 " " 79,488 " 4 " 16,165 " " 7,870 " (102) " 7,768 " " 70,406 " (394) " 70,800 " " 71,110 " 5 " 16,165 " " 7,041 " (97) " 6,944 " " 61,282 " (297) " 61,579 " " 61,895 " 6 " 16,165 " " 6,128 " (88) " 6,040 " " 51,245 " (209) " 51,454 " " 51,757 " 7 " 16,165 " " 5,124 " (78) " 5,046 " " 40,204 " (131) " 40,335 " " 40,606 " 8 " 16,165 " " 4,021 " (65) " 3,956 " " 28,060 " (66) " 28,126 " " 28,340 " 9 " 16,165 " " 2,806 " (47) " 2,759 " " 14,701 " (19) " 14,720 " " 14,848 " 10 " 16,165 " " 1,464 " (b) (19) " 1,445 " - - - - Total amortization " $1,000 " Computations: Column (1)—Contractual payments "Column (2)—Column (5) for prior year × the loan's stated interest rate (8% in year 1, 10% in years 2-10)" Column (3)—Column (4) - Column (2) Column (4)—Column (7) for the prior year × the effective interest rate (9.8085%) Column (5)—Column (5) for prior year - (Column \[1\] - Column \[2\]) Column (6)—Initial net fees - amortization to date Column (7)—Column (5) - Column (6) Column (8)—Column (5) × 1.01 (to calculate the settlement amount including prepayment penalty) (a) Unamortized net fee and accrued interest. (b) $6 rounding adjustment. ##### [310-20-55-35](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-35) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:b8431ee63c07af9359324a96e5d188f590f0efccd1b09bdc8ea24985dd68ef3e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraph [310-20-35-18(a)](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-18) for the application of the interest method of amortization with an increasing rate loan and with no penalty charged for prepayment of principal. This Example has the following assumptions. ##### [310-20-55-36](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-36) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:e22c67d85d79c3749712d3d77fd0060e95c0c0c999ad8a6b3b88bfec623cdaa2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity F grants a 10-year $100,000 loan. The contract provides for 8 percent interest in Year 1 and 10 percent interest in Years 2-10. Entity F receives net fees of $1,000 related to this loan. The contract specifies that no penalty will be charged for prepayment of principal. ##### [310-20-55-37](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-37) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:7c35c27f96ad1cff5b6fc30f262dd9b013473e0a67e2383f5a799408f9d63cd2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The discount factor that equates the present value of the cash inflows in Column 1 with the initial cash outflow of $99,000 is 9.8085 percent. In Year 1, recognition of interest income on the investment of $99,000 at a rate of 9.8085 percent would cause the investment to be $93,807, or $710 greater than the amount at which the borrower could settle the obligation. Because the condition set forth in paragraph [310-20-35-18(a)](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-18) is not met, recognition of an amount greater than the net fee is not permitted. The loan would be accounted for as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-12B04ACC-39D0-4AE0-9885-5F45376ECEE8-low.gif) (1) (2) (3) (4) (5) (6) (7) Year Cash (Out) Inflow Stated Interest Amortization Interest Income Remaining Principal Unamortized Net Fees Carrying Amount " $(99,000)" " $100,000 " " $99,000 " 1 " 14,903 " " $8,000 " " $1,000 " " $9,000 " " 93,097 " $- " 93,097 " 2 " 16,165 " " 9,310 " - " 9,310 " " 86,242 " - " 86,242 " 3 " 16,165 " " 8,624 " - " 8,624 " " 78,701 " - " 78,701 " 4 " 16,165 " " 7,870 " - " 7,870 " " 70,406 " - " 70,406 " 5 " 16,165 " " 7,041 " - " 7,041 " " 61,282 " - " 61,282 " 6 " 16,165 " " 6,128 " - " 6,128 " " 51,245 " - " 51,245 " 7 " 16,165 " " 5,124 " - " 5,124 " " 40,204 " - " 40,204 " 8 " 16,165 " " 4,021 " - " 4,021 " " 28,060 " - " 28,060 " 9 " 16,165 " " 2,806 " - " 2,806 " " 14,701 " - " 14,701 " 10 " 16,165 " " 1,464 " (a) - " 1,464 " - - - Total amortization " $1,000 " Computations: Column (1)—Contractual payments "Column (2)—Column (5) for prior year × the loan's stated interest rate (8% in year 1, 10% in Years 2-10)" Column (3)—Column (4) - Column (2) "Column (4)—Column (7) for the prior year × the effective interest rate (9.8085%) as limited by paragraph 310-20-35-18(a)" Column (5)—Column (5) for prior year - (Column \[1\] - Column \[2\]) Column (6)—Initial net fees - amortization to date Column (7)—Column (5) - Column (6) (a) $6 rounding adjustment. ##### [310-20-55-38](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-38) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:49f914a1652dadb47a4e9ee615f715b032093bc297cfeac64ccdc99f3fa9e74d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraph [310-20-35-18(b)](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-18) for the application of the interest method for a loan with a decreasing interest rate. This Example has the following assumptions. ##### [310-20-55-39](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-39) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:ae22b41279412b67ff590a9cb5400437fde04397c8766532aabc03438c966694 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity G grants a 10-year $100,000 mortgage. Entity G receives net fees of $1,000 related to this loan. The contract provides for an interest rate of 12 percent in Year 1, 11 percent in Year 2, and 10 percent thereafter. The loan would be accounted for as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-4911906B-B848-4BBA-9B6E-D5F95768E5EA-low.gif) (1) (2) (3) (4) (5) (6) (7) Year Cash (Out) Inflow Stated Interest Amortization Interest Income Remaining Principal Unamortized Net Fees (a) Carrying Amount " $(99,000)" " $100,000 " " $99,000 " 1 " 17,698 " " $12,000 " " $(1,259)" " $10,741 " " 94,302 " " $2,259 " " 92,043 " 2 " 17,031 " " 10,373 " (388) " 9,985 " " 87,644 " " 2,647 " " 84,997 " 3 " 16,428 " " 8,764 " 458 " 9,222 " " 79,980 " " 2,189 " " 77,791 " 4 " 16,428 " " 7,998 " 441 " 8,439 " " 71,550 " " 1,748 " " 69,802 " 5 " 16,428 " " 7,155 " 418 " 7,573 " " 62,277 " " 1,330 " " 60,947 " 6 " 16,428 " " 6,228 " 385 " 6,613 " " 52,077 " 945 " 51,132 " 7 " 16,428 " " 5,208 " 339 " 5,547 " " 40,857 " 606 " 40,251 " 8 " 16,428 " " 4,086 " 281 " 4,367 " " 28,515 " 325 " 28,190 " 9 " 16,428 " " 2,852 " 206 " 3,058 " " 14,939 " 119 " 14,820 " 10 " 16,428 " " 1,489 " (b) 119 " 1,608 " - - - Total amortization " $1,000 " Computations: Column (1)—Contractual payments "Column (2)—Column (5) for prior year × the loan's stated interest rate (12% in year 1, 11%for Year 2, and 10% in Years 3-10)" Column (3)—Column (4) - Column (2) Column (4)—Column (7) for the prior year × effective interest rate (10.8491%) Column (5)—Column (5) for prior year - (Column \[1\] - Column \[2\]) Column (6)—Initial net fees - amortization to date Column (7)—Column (5) - Column (6) (a) Unamortized net fee and deferred interest. (b) $5 rounding adjustment. ##### [310-20-55-40](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-40) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:825e5af69542ec01080ef3404dee5ffbccbf63769aa4e768d1f8f60c9edc9e23 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraph [310-20-35-18(c)](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-18) for the application of the interest rate method for a variable rate loan with the amortization based on the index at the date the loan is granted ignoring subsequent changes in the factor. This Example has the following assumptions. ##### [310-20-55-41](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-41) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:624b79621774225279476121154d80f7cc6cee3a3abf045212d16589fd5fb05a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity H grants a 10-year variable rate mortgage. The loan's interest rate and payment are adjusted annually based on the weekly Treasury bill index plus 1 percent. At the date the loan is granted, this index is 7 percent and does not change until the end of Year 3. The first year loan interest rate is 8 percent (equal to the Treasury bill index plus 1 percent). Entity H receives net fees of $3,000. At the end of Year 3 the index changes to 9 percent and does not change again. Therefore, the loan's stated interest rate is 8 percent for Years 1-3 and 10 percent for Years 4-10. Entity H chooses to determine the amortization based on the index at the date the loan is granted and to ignore subsequent changes in the factor. The loan would be accounted for as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-EC1E786F-08BF-4839-B6A9-3729DFFE47EA-low.gif) (1) (2) (3) (4) (5) (6) (7) Year Cash (Out) Inflow Stated Interest Amortization Interest Income Remaining Principal Unamortized Net Fees Carrying Amount " $(97,000)" " $100,000 " " $97,000 " 1 " 14,903 " " $8,000 " $420 " $8,420 " " 93,097 " " $2,580 " " 90,517 " 2 " 14,903 " " 7,448 " 410 " 7,858 " " 85,642 " " 2,170 " " 83,472 " 3 " 14,903 " " 6,851 " 395 " 7,246 " " 77,590 " " 1,775 " " 75,815 " 4 " 15,937 " " 7,759 " 375 " 8,134 " " 69,412 " " 1,400 " " 68,012 " 5 " 15,937 " " 6,941 " 347 " 7,288 " " 60,416 " " 1,053 " " 59,363 " 6 " 15,937 " " 6,042 " 314 " 6,356 " " 50,521 " 739 " 49,782 " 7 " 15,937 " " 5,052 " 272 " 5,324 " " 39,636 " 467 " 39,169 " 8 " 15,937 " " 3,964 " 221 " 4,185 " " 27,663 " 246 " 27,417 " 9 " 15,937 " " 2,766 " 160 " 2,926 " " 14,492 " 86 " 14,406 " 10 " 15,937 " " 1,445 " (a) 86 " 1,531 " - - - Total amortization " $3,000 " Computations: Column (1)—Contractual payments "Column (2)—Column (5) for prior year × the loan's stated interest rate (8% in years 1-3, and 10% in years 4-10)" "Column (3)—Calculated as if the index did not change—that is, the amount that would have been recognized for an 8%, 10-year $100,000 mortgage with no prepayments and a $3,000 net fee" Column (4)—Column (2) + Column (3) Column (5)—Column (5) for prior year - (Column (1) - Column (2\]) Column (6)—Initial net fees - amortization to date Column (7)—Column (5) - Column (6) (a) $4 rounding adjustment. ##### [310-20-55-42](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-42) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:a9787574a9086accc7e6d5e79141143127642ec3334c1fe08bf213619b128c2a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraph [310-20-35-18(c)](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-18) for the application of the interest method to a variable rate loan with amortization recalculated for subsequent changes in loan's index. This Example has the following assumptions. ##### [310-20-55-43](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-43) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:2e75f625637c9c7d79a4de43b79d689db68e0f9e199c29f733d2225c5807012e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity I grants a 10-year variable rate mortgage. The loan's interest rate and payment are adjusted annually based on the weekly Treasury bill index plus 1 percent. At the date the loan is granted, this index is 7 percent and does not change until the end of Year 3. The first year loan interest rate is 8 percent (equal to the Treasury bill index plus 1 percent). Entity I receives net fees of $3,000. At the end of Year 3 the index changes to 9 percent and does not change again. Therefore, the loan's stated interest rate is 8 percent for Years 1-3 and 10 percent for Years 4-10. Entity I chooses to recalculate a new amortization schedule each time the loan's index changes. The loan would be accounted for as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-D1A3A9D0-53E2-4A0A-A9CF-3B53AB2A9E7C-low.gif) (1) (2) (3) (4) (5) (6) (7) Year Cash (Out) Inflow Stated Interest Amortization Interest Income Remaining Principal Unamortized Net Fees Carrying Amount " $(97,000)" " $100,000 " " $97,000 " 1 " 14,903 " " $8,000 " $420 " $8,420 " " 93,097 " " $2,580 " " 90,517 " 2 " 14,903 " " 7,448 " 410 " 7,858 " " 85,642 " " 2,170 " " 83,472 " 3 " 14,903 " " 6,851 " 395 " 7,246 " " 77,590 " " 1,775 " " 75,815 " 4 " 15,937 " " 7,759 " 358 " 8,117 " " 69,412 " " 1,417 " " 67,995 " 5 " 15,937 " " 6,941 " 340 " 7,281 " " 60,416 " " 1,077 " " 59,339 " 6 " 15,937 " " 6,042 " 311 " 6,353 " " 50,521 " 766 " 49,755 " 7 " 15,937 " " 5,052 " 275 " 5,327 " " 39,636 " 491 " 39,145 " 8 " 15,937 " " 3,964 " 227 " 4,191 " " 27,663 " 264 " 27,399 " 9 " 15,937 " " 2,766 " 168 " 2,934 " " 14,492 " 96 " 14,396 " 10 " 15,937 " " 1,445 " (a) 96 " 1,541 " - - - Total amortization " $3,000 " Computations: Column (1)—Contractual payments "Column (2)—Column (5) for prior year × the loan's stated interest rate (8% in Year 1-3, and 10% in Years 4-10)" Column (3)—Column (4) - Column (2) Column (4)—Column (7) for the prior year × the effective interest rate (8.6809%) for years 1-3 and Column (7) for the prior year × the effective interest rate (10.7068%) for Years 4-10 Column (5)—Column (5) for prior year - (Column \[1\] - Column \[2\]) Column (6)—Initial net fees - amortization to date Column (7)—Column (5) - Column (6) (a) $4 rounding adjustment. ##### [310-20-55-44](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-44) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:32892019275ad78104e08d609a57637638010ee3c30fd89d04b8aa8b591314a5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the guidance in paragraph [310-20-35-16](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-16) for the application of the interest method of amortization using the contract life with a partial prepayment in Year 3. ##### [310-20-55-45](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-45) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:c6d8ceabe43309443f4670c51094a9925c7ae6242388bc9b02d2fec07fc460ab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 2 (paragraph [310-20-55-23](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-23)) illustrates the application of the guidance in paragraphs [310-20-35-17 through 35-24](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-17) by a lender that is using contract life to amortize net deferred fees and costs for a group of loans with a full prepayment in Year 3. If the lender receives a partial prepayment in Year 3 rather than a full prepayment, the lender has two options to calculate the adjustment to unamortized net fees as required in paragraph [310-20-35-26](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-26), which states that a lender using contract life to amortize net fees and costs must adjust the unamortized amount if, and when, loan prepayments occur. Such prepayments should not result in a change in the [effective interest rate](https://asc.understandingaccounting.org/glossary/e/#effective-interest-rate "The rate of return implicit in the financial asset, that is, the contractual interest rate adjusted for any net deferred fees or costs, premium, or discount existing at the origination or acquisition of the financial asset. For purchased financial assets with credit deterioration, however, to decouple interest income from credit loss recognition, the premium or discount at acquisition excludes the discount embedded in the purchase price that is attributable to the acquirer's assessment of credit losses at the date of acquisition.") of the loan. The lender should calculate the adjustment to unamortized net fees under either of the following Cases depending on the terms of the loan contract: 1. a The lender will determine a new annual payment assuming the borrower will continue to make the payments through the original term of the loan contract (Case A). 2. b The borrower will continue to make the original annual payment, however, over a shorter period than the term specified in the loan contract (Case B). ##### [310-20-55-46](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-46) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:227b5be62df06c1f978e07e53d5569785bb94a7b760d56bbc959233f69d706c9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following tables illustrate how the lender should calculate the adjustment to unamortized net fees assuming the borrower will continue to make the payments through the original term of the loan contract. - ![](https://asc.understandingaccounting.org/asc-img/GUID-A0DAF8D9-AB0D-4900-8B12-421DBB0755D8-low.gif) Year Cash(Out) Inflow Stated Interest Amortization Interest Income Remaining Principal Unamortized Net Fees Carrying Amount " $(98,000)" " $100,000 " " $98,000 " 1 " 16,275 " " $10,000 " $264 " $10,264 " " 93,725 " " $1,736 " " 91,989 " 2 " 16,275 " " 9,373 " 262 " 9,635 " " 86,823 " " 1,474 " " 85,349 " 3 " 26,275 " " 8,682 " 407 (4) " 9,089 " " 69,230 " " 1,067 " (3) " 68,163 " (2) 4 " 14,220 " (1) " 6,923 " 216 " 7,139 " " 61,933 " 851 " 61,082 " 5 " 14,220 " " 6,193 " 204 " 6,397 " " 53,906 " 647 " 53,259 " 6 " 14,220 " " 5,391 " 187 " 5,578 " " 45,077 " 460 " 44,617 " 7 " 14,220 " " 4,508 " 165 " 4,673 " " 35,365 " 295 " 35,070 " 8 " 14,200 " " 3,537 " 136 " 3,673 " " 24,682 " 159 " 24,523 " 9 " 14,220 " " 2,469 " (a) 99 " 2,568 " " 12,931 " 60 " 12,871 " 10 " 14,220 " " 1,289 " (b) 60 " 1,349 " (a) - - - " $2,000 " Step Calculation 1. Determine new annual payment Remaining periods = 7 "Remaining principal = $69,230" Stated rate = 10% "Calculated payment = $14,220" 2. Determine new carrying amount "Calculated payment (Step 1) = $14,220" Remaining periods = 7 Original effective interest rate = 10.4736% "Calculated carrying amount = $68,163" 3. Determine the remaining Remaining principal balance (Step 1) " $69,230 " balance of unamortized net fees Less carrying amount (Step 2) " 68,163 " " $1,067 " 4. Determine the adjustment to Prior year balance of unamortized net fees " $1,474 " unamortized net fees Less calculated unamortized net fees (Step 3) " 1,067 " $407 (a) $1.00 rounding adjustment (b) $4.00 rounding adjustment ##### [310-20-55-47](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-47) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:33577bc33f0d8de847b9596ea41133dd10206b3d0d92e51954ce338bb57e3cf2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following tables illustrate how the lender should calculate the adjustment to unamortized net fees assuming the borrower will continue to make the original annual payment, however, over a shorter period than the term specified in the loan contract. - ![](https://asc.understandingaccounting.org/asc-img/GUID-F3CFB779-35E1-4C5D-BC3E-514C2B748968-low.gif) Year Cash (Out) Inflow Stated Interest Amortization Interest Income Remaining Principal Unamortized Net Fees Carrying Amount " $(98,000)" " $100,000 " " $98,000 " 1 " 16,275 " " $10,000 " $264 " $10,264 " " 93,725 " " $1,736 " " 91,989 " 2 " 16,275 " " 9,373 " 262 " 9,635 " " 86,823 " " 1,474 " " 85,349 " 3 " 26,275 " " 8,682 " 546 (4) " 9,228 " " 69,230 " 928 (3) " 68,302 " (2) 4 " 16,275 " (1) " 6,923 " 231 " 7,154 " " 59,878 " 697 " 59,181 " 5 " 16,275 " " 5,988 " 210 " 6,198 " " 49,591 " 487 " 49,104 " 6 " 16,275 " " 4,959 " 184 " 5,143 " " 38,275 " 303 " 37,972 " 7 " 16,275 " " 3,828 " 149 " 3,977 " " 25,828 " 154 " 25,674 " 8 " 16,275 " " 2,583 " 106 " 2,689 " " 12,136 " 48 " 12,088 " 9 " 13,349 " " 1,214 " 48 " 1,262 " (a) - (b) - - 10 - - - - - - - " $2,000 " Step Calculation 1. Determine new payment period "Remaining principal = $69,230" Stated rate = 10% "Annual payment = $16,275" Calculated payment period = 5.813 2. Determine new carrying amount "Annual payment = $16,275" Calculated payment period (Step 1) = 5.813 Original effective interest rate = 10.4736% "Calculated carrying amount = $68,302" 3. Determine the remaining balance Remaining principal balance (Step 1) " $69,230 " of unamortized net fees Less carrying amount (Step 2) " 68,302 " $928 4. Determine the adjustment Prior year balance of unamortized net fees " $1,474 " to unamortized net fees Less calculated unamortized net fees (Step 3) 928 Adjustment $546 (a) $4.00 rounding adjustment (b) $1.00 rounding adjustment ##### [310-20-55-48](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-48) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:13d756ad484ccbee7670f41c244040c85737bb3ad6086b76bf953fdacfc69278 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [310-20-55-49 through 55-50](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-49) . ##### [310-20-55-49](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-49) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:e938298b1a71a67cb92505d75c23541acc743a794c97ef5fb118e95f7368614e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that a credit facility provides for the extension of multiple, unscheduled drawdowns (or loans) with varying maturities. Also assume that the facility does not have the characteristics of a revolving line of credit (for example, repayments of amounts borrowed are not available for reborrowing) and drawdowns are anticipated. The commitment fee shall be deferred until the facility is exercised and a drawdown is made. Given the multiple, unscheduled drawdowns intended under the facility, a pro rata portion of the commitment fee (equal to the percentage of the loan drawn down to the total facility) shall be recognized over the life of the applicable drawdown as an adjustment of its yield. ##### [310-20-55-50](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-50) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:b9f10651601b2d1fc5eb9c394be18a2adf3bd664ca80c86d7689bf1fb43f15cc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For example, assume that a commitment fee net of deferrable costs of $100,000 is received at the inception of a 2-year facility of $10,000,000 that permits the borrower to make multiple, unscheduled drawdowns of varying maturities during the 2-year commitment period. Assume then that the borrower draws down a $1,000,000 loan due in 3 years in the fourth month of the 2-year commitment period. Assume further that the borrower draws down another $2,000,000 loan due in 5 years in the sixth month of the commitment period. The remainder of the facility expires unused. The commitment fee would be recognized as follows: 1. a At inception of the facility. Qualifying costs to establish the credit facility would be deferred, and no fee income would be recognized because the entire fee is deferred until a drawdown occurs. 2. b Months 1-3. No net fee income would be recognized because no drawdowns have occurred. 3. c Month 4. A pro rata portion of the net commitment fee equal to the ratio of the drawdown to the total facility would be recognized over the life of the drawdown as an adjustment of yield. In this example: Current drawdown/Total facility x Net commitment fee = Amount to be recognized over the life of the drawdown as a yield adjustment. For example: $ 1,000,000/$10,000,000 x $100,000 = $10,000 4. d Month 6. Similar to the month 4 illustration, a pro rata portion of the deferred net fee equal to the ratio of the current drawdown to the total facility would be recognized over the life of the drawdown as an adjustment of yield. In this example: $ 2,000,000/$10,000,000 x $100,000 = $20,000 5. e Months 7-23. No additional net fee income other than amortization of net [commitment fees](https://asc.understandingaccounting.org/glossary/c/#commitment-fees "Fees charged for entering into an agreement that obligates the entity to make or acquire a loan or to satisfy an obligation of the other party under a specified condition. Commitment fees include fees for letters of credit and obligations to purchase a loan or group of loans and pass-through certificates.") recognized as yield adjustments would be recognized because no further drawdowns have occurred; thus, the remaining $70,000 net commitment fee would continue to be deferred. 6. f Month 24. The remaining deferred net commitment fee of $70,000 would be recognized in income upon expiration of the facility because additional drawdowns are not possible. ##### [310-20-55-51](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-51) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:f083e103d129da37fa268289397cac2d4d2397267080276787c1b3a34e99473c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in Subtopic 310-20. The Example has the following assumptions: 1. a At December 31, 20X2, a lender's net real estate loan receivable was $90,000. The net receivable was comprised of (a) $100,000 principal balance and (b) $10,000 allowance for credit losses due to the deterioration of the borrower's credit worthiness; the allowance was based on the underlying value of the real estate since the loan is collateral dependent. 2. b Between December 31, 20X2 and March 31, 20X3, the borrower did not make principal payments. On March 31, 20X3, the real estate's estimated fair value was $75,000. The estimated costs to sell were $4,000. 3. c On May 1, 20X3, the lender foreclosed on the real estate; the real estate's estimated fair value and costs to sell remained unchanged from March 31, 20X3. The real estate was classified as held for sale under Topic 360, subsequent to foreclosure. 4. d At September 30, 20X3, the fair value of the property was $65,000. The estimated costs to sell were $3,000. 5. e At March 31, 20X4, the fair value of the property was $80,000. The estimated costs to sell were $5,000. ##### [310-20-55-52](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-52) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:5e9c67e49ea7573a4a588333ec2117ddeb715fc9f8bc8eaf8bdd90ddd6524b35 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On March 31, 20X3, the lender estimates expected credit losses using the fair value of the collateral in accordance with paragraphs [326-20-35-4 through 35-5](https://asc.understandingaccounting.org/asc/326/20/#326-20-35-4) . Accordingly, the lender should record an allowance for credit losses in the cumulative amount of $29,000 ($19,000 incremental amount plus $10,000 recorded previously) measured as the difference between the amortized cost basis ($100,000) and the fair value less cost to sell ($71,000). Upon foreclosure on May 1, 20X3, the application of paragraph [310-20-40-5](https://asc.understandingaccounting.org/asc/310/20/#310-20-40-5) results in the measurement of a new cost basis (also $71,000) for long-lived assets received in full satisfaction of a receivable. ##### [310-20-55-53](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-53) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:793f507032de04529d6ed2a7bbcaea76bf3d0ee7987c398c7d6dc70514cb5226 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The fair value less cost to sell decrease to $62,000 as of September 30, 20X3, requires the lender to recognize an impairment of $9,000 ($71,000 - $62,000) under Topic 360. While the long-lived asset's fair value less cost to sell increased $13,000 ($75,000 - $62,000) as of March 31, 20X4, the lender's gain recognition is limited to the cumulative losses recognized and measured under Topic 360, or $9,000. The $29,000 of credit losses recognized previously under Subtopic 326-20 on financial instruments measured at amortized cost are excluded from the measurement of cumulative losses under Topic 360. ##### [310-20-55-54](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-54) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:a01a7d7f94152965a43d2df8da4e2fb3991847e8f425a4ff265649f1b97ff2de Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraph [310-20-35-9](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-9) to determine whether the terms of a modified loan are at least as favorable to the lender as the terms for comparable loans to other customers with similar collection risks who are not refinancing or restructuring a loan with the lender. This Example has the following assumptions. ##### [310-20-55-55](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-55) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:696b3d6e0aa8c454eb0d455028908c1fac1b1b990719f982499362f52f751b61 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On January 1, 20X1, Entity J originates a 10-year $100,000 consumer loan to an individual with a FICO score of 710. The loan’s stated interest rate is 7 percent. On June 30, 20X3, Entity J modifies the loan to reduce the effective interest rate to 3 percent. At the time of the modification, the borrower’s credit score is 650. Between the loan’s origination date and modification date, interest rates have decreased and the at-market interest rate for a borrower with a credit score of 650 is 5 percent at the date of the modification. ##### [310-20-55-56](https://asc.understandingaccounting.org/asc/310/20/#310-20-55-56) Pending content: no Source downloaded (UTC): 2026-09-09T23:26:11.164Z to 2026-09-09T23:26:11.164Z Record version: sha256:6053f6898dfd96d8059a53a226f0994a271bb09c52f377d7aa2d097cfb3c90a4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On the date of the modification, Entity J compares the effective interest rate on the modified loan with the effective interest rate that it has negotiated for new loans with similar characteristics originated to borrowers with a credit score that approximates 650. Entity J concludes that the effective interest rate on the modified loan (3 percent) is lower than the effective interest rate on a similar new loan (5 percent), and, therefore, Entity J does not have to assess whether the modification is more than minor in accordance with paragraph [310-20-35-11](https://asc.understandingaccounting.org/asc/310/20/#310-20-35-11). Instead, the modification would be accounted for as a continuation of the existing loan.