accretable yield

Assets2

1. 310-30Loans and Debt Securities Acquired with Deteriorated Credit Quality310 Receivables

   ASC 310-30 formerly governed loans and debt securities acquired with evidence of deteriorated credit quality (so-called purchased credit-impaired assets), where it was probable at acquisition that the investor would not collect all contractually required payments receivable; it required accreting the excess of expected cash flows over the initial investment into interest income as accretable yield and prohibited carrying over or creating a valuation allowance at acquisition. Every substantive paragraph of this subtopic has been superseded by Accounting Standards Update No. 2016-13 (CECL). Purchased financial assets with credit deterioration are now accounted for under Subtopics 326-20 and 326-30.

2. 325-40Beneficial Interests in Securitized Financial Assets325 Investments—Other

   ASC 325-40 governs how a holder recognizes interest income on beneficial interests in securitized financial assets — both a transferor's retained interests in securitizations accounted for as sales under Topic 860 and purchased beneficial interests. The holder measures accretable yield at acquisition as the excess of cash flows expected to be collected (or contractual cash flows, for PCD beneficial interests) over the initial investment (or initial amortized cost basis), and accretes it into interest income using the effective yield method. Expected cash flows must be updated each period; favorable or adverse changes are run first through the credit loss guidance in Topic 326, with any residual change adjusting accretable yield prospectively.