As I stated in my post on ASU 2015-03, the accounting for debt issue costs is relatively small potatoes. The point was to illustrate that the FASB’s so-called “simplification initiative” was driven by politics, and that actual simplification might, or might not, be the outcome.
That post also raised questions about the nature of “interest,” that are far from small potatoes. Most notably, both the FASB and IASB are in the final throes of their efforts to finalize standards for the accounting for loans, including periodic interest income.
So, let’s talk about “interest.” What is it, really? Does current or prospective GAAP appropriately measure income from lending? What are the implications for measuring loans?
A Simple Example
Kathy took out a 10-year $100,000 mortgage loan from her local bank at an interest rate of 10%. To keep the problem really simple, but without loss of generality, the loan is [Read More...]