ASC 835-974

Real Estate—Real Estate Investment Trusts

835 Interest

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Source downloaded: 2026-09-10T01:51:26.169Z.Record version 897c83f9490a. Effective date must be checked in the source.

In brief

IntermediateRecognition Subsequent measurement Impairment Industry-specific

This Subtopic governs when a real estate investment trust must stop recognizing interest revenue on loans it holds. Interest recognition must be discontinued when it is no longer reasonable to expect the revenue will be received, and certain conditions (past-due payments, default, foreclosure, borrower creditworthiness doubts, construction cost overruns/delays, renegotiation) create a rebuttable presumption that recognition should stop (835-974-35-1). Once discontinued, recognition may not resume and unrecorded interest may not be recognized until it is evident that principal and interest will be collected (835-974-35-2).

Key points (7)

Recognition of interest revenue on REIT loans shall be discontinued when it is not reasonable to expect that the revenue will be received (835-974-35-1).
Any of six listed conditions establishes a presumption that interest recording should be discontinued: past-due principal or interest, borrower default, actual or expected foreclosure proceedings, doubtful creditworthiness (bankruptcy, liens), cost overruns or construction delays casting doubt on project viability, or loan renegotiation (835-974-35-1).
The presumption is rebuttable and may be overcome if other facts clearly refute it (835-974-35-1).
The same conditions may also indicate that an allowance for losses should be provided (835-974-35-1).
Because discontinuance is a realization question, interest recognition shall not resume and unrecorded interest shall not be recognized until it is evident that principal and interest will be collected (835-974-35-2).
Including doubtful amounts in interest revenue is inappropriate because such presentation contradicts economic reality (835-974-35-3).
Scope follows Section 974-10-15 (835-974-15-1).

For students. This is the classic "nonaccrual" rule applied to REIT mortgage loans: the trigger is doubtful realization, not a fixed number of days past due. The common mistake is thinking accrual can restart once a borrower makes one payment—recognition resumes only when it is evident that both principal and interest will be collected.

interest revenue recognition nonaccrual loans realization rebuttable presumption real estate investment trust allowance for loan losses loan renegotiation foreclosure

Machine-generated study aid for ASC 835-974. Check the source paragraphs below.

835-974-05Overview and Background

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835-974-05-1

This Subtopic addresses measurement issues related to interest revenue on loans held by real estate investment trusts.

835-974-15Scope and Scope Exceptions

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Overall Guidance

835-974-15-1

This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 974-10-15.

835-974-35Subsequent Measurement

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Discontinuance of Interest Revenue Recognition

835-974-35-1

The recognition of interest revenue on loans made by real estate investment trusts shall be discontinued when it is not reasonable to expect that the revenue will be received. Also, certain conditions should be regarded as establishing a presumption (which may be overcome if other facts clearly refute the presumption) that the recording of interest shall be discontinued, including any of the following:

a
Payments of principal or interest are past due.
b
The borrower is in default under the terms of the loan agreement.
c
Foreclosure proceedings have been or are expected to be initiated.
d
The credit-worthiness of the borrower is in doubt because of pending or actual bankruptcy proceedings, the filing of liens against his assets, and so forth.
e
Cost overruns or delays in construction cast doubt on the economic viability of the project.
f
The loan has been renegotiated.

These conditions may also be an indication that an allowance for losses should be provided.

835-974-35-2

The discontinuance of interest revenue recognition is related to the question of realization and, consequently, such recognition shall not be resumed, nor shall unrecorded interest be recognized, until it is evident that the principal and interest will be collected.

835-974-35-3

Since interest recognition is discontinued because realization is doubtful, it is not appropriate to include such amounts in interest revenue in the financial statements because such a presentation contradicts economic reality.