It is also a reminder that the tax rules governing debt issuance costs in debt-for-debt exchanges and refinancings purposes are independent of the financial accounting rules in this area. As reporting jurisdictions further harmonized accounting practice the need to establish a more consistent treatment of these costs was required. This Handbook uses Q&As and examples to simplify the complexities of accounting for these financial instruments in the scope of ASC 405, ASC 470, ASC 480, ASC 505 and ASC 815. This refinance is deemed to be an extinguishment; all prior debt issuance costs should be written off, and any new costs incurred in connection with such refinancing should be capitalized and … This change is required by Accounting Standards Update No. This section applies to debt issuance costs paid or incurred for debt instruments issued on or after December 31, 2003. 2015-03, Interest – Imputation of Interest, Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30). The theory behind this treatment is that the issuance costs created a funding benefit for the issuer that will last for a number of years, so the expense should be recognized over that period. Debt issuers considering debt issuance costs tax deductions should consult with their tax advisors. Examples are cash receipts from the sale of an entity’s own equity instruments or from issuing debt, and proceeds from derivative instruments. Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. Debt is often refinanced with a new lender, and the rules are quite simple. Now, these cost will be netted with the related debt. An issuer required to change its method of accounting for debt issuance costs to comply with this section must secure the consent of the Commissioner in accordance with the requirements of § 1.446-1(e). FASB issued an Accounting Standards Update aimed at simplifying the presentation of debt issuance costs. (e) Accounting method changes - (1) Consent to change. In and around 2015/16 changes were brought in that meant a change to how these costs were to recognized and disclosed. For some time now, such costs were booked as a deferred charge (an asset). 2015-03, Interest – Imputation of Interest, has been issued and requires the presentation of debt issuance costs as a reduction of the carrying amount of the debt, whereas prior guidance indicated these costs should be reported as an asset. In this article, we will look at accounting requirements for debt issuance costs under US GAAP and an example of accounting for such costs using the effective interest rate method and the straight-line method. Since ASU 2015-03 does not address deferred issuance costs for Debt Issuance Costs” (ASU 2015-03), which resulted in the reclassification of debt issuance costs from “Other Assets” to inclusion as a reduction of our reportable “Long-Term Debt” balance on our consolidated balance sheets. ASU No. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. The proper accounting for these debt issuance costs is to initially recognize them as an asset, and then charge them to expense over the life of the bonds. Debt issuance costs have a new parking place. (d) Effective date. On April 7, 2015, the FASB issued ASU 2015-03¹ which changed the presentation of debt issuance costs in financial statements. The process of obtaining a loan or issuing debt securities involves costs. This complexity creates accounting issues regarding how these financial instruments are classified, measured and presented in financial statements. Harmonized Accounting Standards of Debt Issuance Costs. Examples of cash outflows from financing activities are cash outlays for dividends , share repurchases, payments for debt issuance costs, and the paydown of outstanding debt. 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