It depends on which type of loan you borrowed and for what purpose you are capitalizing. First, we differentiate which part of the amount is current expenses and which part needs to be capitalized.
For example: A Company enters into a new line of credit agreement with their bank. The agreement requires a loan origination fee of $20,000 which is paid by the Company to the lender at the date of the line of credit closing. The line of credit agreement is valid for 5 years.
This fee should be recorded on the balance sheet when paid and amortized over the five year remaining term of the line of credit.
DR: Other Asset, current portion – Loan Origination Fees $4,000
DR: Other Asset, non-current portion – Loan Origination Fees $16,000
CR: Cash $20,000
Another example, we examine whether the legal costs of the lender has been charged to us to become our cost to consider to start with.
As a fundamental rule, if the amount is significant to the amount of the loan and the life of the loan, it should not be currently expended, we capitalize over the life of the loan.
Please feel free to follow up.
Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP