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Ed Johnson
Ed Johnson, HR & Business Operations Consultant
Category: Finance
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Experience:  Central Michigan University, MSA Candidate; Global Compensation Operations Mngr; AA Degree Lib Arts
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Are origination & commitment fees paid capitalized

Customer Question

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When recording notes payable? I can''t find the appropriate accounting guidance to support my gut that they should be.
Submitted: 6 years ago.
Category: Finance
Expert:  Ed Johnson replied 6 years ago.

Dear Ohio,

For accounting purposes, SFAS No. 91 requires, that loan origination costs and loan committmetn fees be capitalized and amortized -- as a yield adjustment -- over the life of the associated loan.

However, for tax purposes The so called Loan commitment fees are not amortized (capitalized).

The tax treatment of these fees is not the same as the accounting treatment.

this article descibes in layman's terms the process.

http://www.cfonet.com/article.cfm/3000697?f=search

Please let me know if you have any quesitons. The referece includes a precedent court case.

Customer: replied 6 years ago.
Reply to Ed Johnson's Post: Thank you. I actually found that same article, but believed that FAS 91 applies when you are the lender, not the borrower. True? In this case we are the borrower. What do you think?
Expert:  Ed Johnson replied 6 years ago.

yes, they apply to the lender. I use the articles rather than the actual text of the IRS regs because the IRS regs are harder to understand sometimes. AND in this case you needed the benefit of the precedence if you were the lender. Since you were using terminology about the accounting, I took it to mean you were the lender.

As the borrower, this depends on the purpose of the loan.

Is this a rental property?

commercial property?

Business use?

Primary or secondary residence?

AND are you using cash accounting or accrual accounting?

 

Customer: replied 6 years ago.
Thanks again. XXXXX only interested in the GAAP treatment, not tax as we are a 501c3. We prepare our f/s on an accrual basis. The fees are associated with a construction loan for a building we are building and a line of credit we obtained from a bank for operations of the organization. It just seems like all the fasb's I read (91) and apb 21 pertained to the lender.
Expert:  Ed Johnson replied 6 years ago.

According to Deloitte, and Millers GAAP guide,

1. the borrower recognizes the committment fees when the service is performed.

2. The origination fees are taken over the life of the loan.

Reference souce:

http://www.deloitte.com

AND 2006 miller GAAP Guide, as accessed through Central Michigan University Research Library.

 

 

Customer: replied 6 years ago.
Sorry for the delay. I was out of the office yesterday. When I pull up the Deloitte website, I just go to the home page. Help! I need a specific reference to give our auditors. Thanks, Shannon
Customer: replied 6 years ago.
Ed,
After today, I will not be back until Monday so I hope we can resolve this today so I can accept your answer.

thanks,
Shannon
Expert:  Ed Johnson replied 6 years ago.

Dear shannon,

having trouble finding my original references.

You do not have to accept my answer.

 

Customer: replied 6 years ago.
HI Ed,

I'm back in the office today (I work Mondays and Wednesdays). Were you able to find the references?

thanks,
Shannon
Customer: replied 6 years ago.
I haven't heard anything in a week. What's the status?

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Central Michigan University, MSA Candidate; Global Compensation Operations Mngr; AA Degree Lib Arts