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An investor-lender that does not capitalize interest on its own real estate construction and development projects (see Subtopic 835-20) shall account for interest on loans and advances that are not in substance capital contributions in accordance with the following recommendations:
  1. a
    All interest income on the investor's loans or advances to the venture shall be deferred if either of the following conditions is present:
    1. 1
      Collectibility of the principal or interest is in doubt. This condition may exist if adequate collateral and other terms normally required by an independent lender are not present.
    2. 2
      There is a reasonable expectation that the other investors will not bear their shares of losses, resulting in uncertainty as to the lender's share of the venture's related interest expense.
  2. b
    If neither of the conditions in (a) is present and either the venture has recorded interest as an expense or the venture has capitalized the interest but in order to conform to the investor's accounting policies, the investor has recorded its equity in the income or loss of the venture as if the venture had charged the interest to expense, the entire interest income accrued on loans or advances to a venture shall be recorded as earned.
  3. c
    If the conditions in (a) or (b) are not present, a portion of interest income from loans and advances to a venture shall be deferred based on the investor's percentage interest in the profits and losses of the venture. However, an evaluation similar to that discussed in paragraphs
    970-323-35-8 through 35-10
    for recording the investor's share of losses should be made to avoid recording as interest income amounts that may ultimately be borne as losses by the investor making the loan.
See paragraph 970-323-35-22 regarding situations where certain amounts of interest are accounted for as distributions rather than as interest income.
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