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    Loan Receivables: Loan Receivable Origination Fees

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    krisha millo
    The document discusses accounting for loan origination fees. It defines loan receivables as loans granted by financial institutions and origination fees as fees charged to borrowers for creating the loan. Origination fees received are recognized as unearned income and amortized over the loan term, while direct origination costs incurred are also amortized over the term. If fees exceed costs, the difference is unearned income; if costs exceed fees, the difference is a direct organization cost. Indirect origination costs are expensed outright. The loan receivable is initially measured at fair value plus transaction costs and subsequently at amortized cost.

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    Loan Receivables: Loan Receivable Origination Fees

    Uploaded by

    krisha millo
    261 views7 pages
    The document discusses accounting for loan origination fees. It defines loan receivables as loans granted by financial institutions and origination fees as fees charged to borrowers for creating the loan. Origination fees received are recognized as unearned income and amortized over the loan term, while direct origination costs incurred are also amortized over the term. If fees exceed costs, the difference is unearned income; if costs exceed fees, the difference is a direct organization cost. Indirect origination costs are expensed outright. The loan receivable is initially measured at fair value plus transaction costs and subsequently at amortized cost.

    Original Title

    LOAN_RECEIVABLES

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    The document discusses accounting for loan origination fees. It defines loan receivables as loans granted by financial institutions and origination fees as fees charged to borrowers for creating the loan. Origination fees received are recognized as unearned income and amortized over the loan term, while direct origination costs incurred are also amortized over the term. If fees exceed costs, the difference is unearned income; if costs exceed fees, the difference is a direct organization cost. Indirect origination costs are expensed outright. The loan receivable is initially measured at fair value plus transaction costs and subsequently at amortized cost.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    261 views7 pages

    Loan Receivables: Loan Receivable Origination Fees

    Uploaded by

    krisha millo
    The document discusses accounting for loan origination fees. It defines loan receivables as loans granted by financial institutions and origination fees as fees charged to borrowers for creating the loan. Origination fees received are recognized as unearned income and amortized over the loan term, while direct origination costs incurred are also amortized over the term. If fees exceed costs, the difference is unearned income; if costs exceed fees, the difference is a direct organization cost. Indirect origination costs are expensed outright. The loan receivable is initially measured at fair value plus transaction costs and subsequently at amortized cost.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 7

    LOAN RECEIVABLES

    To understand accounting for origination fees

    Loan receivable: a loan granted by a bank or other financial institution to a


    borrower or client
    Origination fees: the fees charged by the bank against the borrower for the
    creation of the loan

    Accounting for Origination Fees


    Origination fees received OFR: recognize as unearned interest income and
    amortized over the term of the loan
    : Offset with Direct Origination Cost before amortization
    : eto yung binigay ni client
    Direct Origination Cost DOC: recognize as direct orgination cost and amortized
    over the term of the loan
    : Offset with Origination Fees Received before amortization
    : eto yung ginastos

    Offsetting

    OFR is greater than DOC = Unearned Interest Income (same with Discount on
    Notes Receivable)

    DOC is greater OFR = Direct Organization Cost (same with Premium on Notes
    Receivable which means that nadagdagan yung utang ni client sa atin)

    Indirect Origination Cost IOC: treated as outright expense

    INITIAL MEASUREMENT

    Loan receivable is measured at fair value plus transaction costs

    LOAN RECEIVABLES 1
    Fair value is normally the transaction price

    Transaction costs include directly attributable costs such as direct origination


    cost

    SUBSEQUENT MEASUREMENT

    measured at amortized cost

    Amortized cost is the equal to:


    Initial measurement of LR
    Less: Principal payment
    Add: Amortization of Unearned Interest Income
    Less: Amortization of Direct Origination Cost
    Less: Reduction for Impairment

    OFR > DOC


    Origination Fee Received is greater than Direct Origination Cost
    Illustration:
    On Jan. 1, 2020, AWTS Bank granted a 3-year loan to DEW TURTLE Corporation.
    The loan requires payment of 10% interest annually starting Dec. 31, 2020.

    Principal amount 4,000,000


    Direct origination cost incurred 150,000

    Origination fee received from borrower 342,100


    Considering the effect of the origination cost and origination fee received, the
    effective rate is 12%

    INITIAL MEASUREMENT

    LOAN RECEIVABLES 2
    The entry to record on Jan. 1, 2020

    SUBSEQUENT MEASUREMENT

    Amortized cost at year-end:

    Amortization of Unearned Interest Income:

    LOAN RECEIVABLES 3
    LOAN RECEIVABLES 4
    DOC > OFR

    Direct Origination Cost is greater than Origination Fee Received

    Illustration:
    On Jan. 1, 2020, AWTS Bank granted a 3-year loan to DEW TURTLE Corporation.
    The loan requires payment of 8% interest annually starting Dec. 31, 2020.

    Principal amount 3,000,000


    Direct origination cost incurred 260,300

    Origination fee received from borrower 100,000

    Considering the effect of the origination cost and origination fee received, the
    effective rate is 6%

    INITIAL MEASUREMENT

    The entry to record on Jan.1, 2020

    LOAN RECEIVABLES 5
    Amortized cost at year-end:

    Amortization of Unearned Interest Income:

    LOAN RECEIVABLES 6
    LOAN RECEIVABLES 7

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