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Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 482
Experience:  Former IRS Revenue Agent
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I have a GAAP question, can you help,?

Customer Question

JA: Hi. How can we help?
Customer: I have a GAAP question
JA: The Accountant will know how to help. Please tell me more, so we can help you best.
Customer: can you help
JA: Is there anything else the Accountant should be aware of?
Customer: ?
Submitted: 10 months ago.
Category: Finance
Customer: replied 10 months ago.
for GAAP. If i am the Borrower of a Loan. How do i handle the following costsOrigination Fees
Legal Costs of the Lender
Broker Commission
Title Insurance at ClosingDo i capitalize any of them and amortize over the life of the loan?
Expert:  Dr. Fiona Chen replied 10 months ago.

Dear Customer,

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

Customer: replied 10 months ago.
What about broker commission..and i already saw this on the web
Expert:  Dr. Fiona Chen replied 10 months ago.

p.s. On the above link, click on the calculation tab on the bottom of the page.

Expert:  Dr. Fiona Chen replied 10 months ago.

Dear Customer,

First, please ignore my last posting starting with "p.s." which was posted to your question unintentionally.

As to the commission, provided that it is on the closing document, charged to the borrower, direct loan origination costs include only those costs that are incremental direct costs of loan origination incurred in transactions with independent third parties and certain costs related directly to specific activities performed by the lender for that loan. Examples of incremental costs include commissions paid to acquire the loan, underwriting fees, and costs associated with the processing of loan documents and closing of the transaction.

Therefore, the same accounting and the differentiation of the current expense and the capitalization should be adopted as the prior example.