How should fees and transaction costs incurred in connection with debt financing arrangements be accounted for?
Financing fees and transaction costs that are directly attributable to a funded debt financing arrangement that will be measured at amortized cost are deducted in determining the initial measurement of the liability. On the balance sheet this is shown as a single amount – the debt is not shown gross and the fees and costs are not shown as a separate asset. Fees and transaction costs associated with a line of credit or a revolving debt arrangement are recognized as prepaid interest and amortized over the term of the arrangement. This treatment is required because the fee represents the cost of having the ability to draw and repay the loan throughout its term; it is similar in nature to an insurance premium. Financing fees and transaction costs may be amortized on any rational basis over the term of the arrangement including the effective interest method and straight-line. The amortization period is often determined by the nature of the fee. For example, a fee that is charged annually wi
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