If a reporting entity borrows a portion of the debt, only a proportionate amount of the commitment fee asset should be recognized as an adjustment to the amortized cost basis of the debt drawn. The adjustment to the amortized cost basis will be amortized over the term of the debt as component of the debt’s effective yield. Once the debt is drawn, the reporting entity should record the debt on its balance sheet, derecognize the commitment fee asset, and record the commitment fee as a component of the debt’s amortized cost basis. For instance, if a reporting entity is near certain that it will draw down/borrow the debt, the commitment fee is economically compensation for the borrowing, and we believe it would be appropriate for the commitment fee to remain as an asset on the balance sheet until the debt is drawn. We believe that the subsequent accounting for deferred costs is based on the facts and circumstances. As such, we believe these costs meet the definition of an asset and should be recorded as such on the balance sheet. That is, the fees are paid whether or not the funds are ever drawn down. Borrowings under a line of credit may be used, repaid, and reborrowed in different. A line of credit is an extension of credit to a borrower that can be accessed or drawn down at any time at the reporting entity’s discretion. When a reporting entity enters into a delayed draw debt agreement, it pays a commitment fee to the lender in exchange for access to capital over the contractual term. 1.3 Lines of credit and revolving-debt arrangements. Transfers and servicing of financial assets Revenue from contracts with customers (ASC 606) Company B also hires all of the scientists formerly employed by Company A, who are integral to developing the acquired product candidates. Loans and investments (post ASU 2016-13 and ASC 326) Company B, also in the pharmaceutical industry, acquires Company A, including the rights to all of Company A’s product candidates, testing and development equipment. Investments in debt and equity securities (pre ASU 2016-13) Insurance contracts for insurance entities (pre ASU 2018-12) Insurance contracts for insurance entities (post ASU 2018-12) IFRS and US GAAP: Similarities and differences federal income tax purposes, DFC are generally amortized over the life of the debt using the straight-line method.Business combinations and noncontrolling interestsĮquity method investments and joint ventures GAAP, when issuing securities without specific maturity, such as perpetual preferred stock, financing costs reduce the amount of paid in capital associated with that security. Early debt repayment results in expensing these costs. The unamortized amounts are included in the long-term debt, as a reduction of the total debt (hence contra debt) in the accompanying consolidated balance sheets. The costs are capitalized, reflected in the balance sheet as a contra long-term liability, and amortized using the effective interest method or over the finite life of the underlying debt instrument, if below de minimus. For accounting purposes, costs associated with an acquisition can be divided in three buckets: Direct costs of the transaction which may include due diligence services, accountants, attorneys, investment bankers, etc. Direct transaction costs include those third-party costs that can be directly attributable to the asset acquisition and would not have been incurred absent the acquisition transaction. Since these payments do not generate future benefits, they are treated as a contra debt account. ASC 805-50-30-2 specifically provides ASC 845 and ASC 610-20 as examples of other US GAAP that may apply to these transactions (see PPE 2.3.1.1). Deferred financing costs or debt issuance costs is an accounting concept meaning costs associated with issuing debt (loans and bonds), such as various fees and commissions paid to investment banks, law firms, auditors, regulators, and so on.
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