USA Capitalization of early pay-off penalty from old loan

[zeesung]

I have a client who plan to refinance its building mortgage loan due to high interest rate issue.

They already found a new lendor and received a lower interest rate.

They have to pay about $300K of early pay-off penaly for the refinance.

I am pretty sure it should be expensed in the current year as it has nothing to do with new borrowing arrangement.

Does anyone have a simillar experience or guidance ?

thanks,


Max

 

[kirby]

Look up the acctg for "early extinguishment of debt". Includes a "refunding" which is what you have. Recorded as a current period item (expensed) and not an extraordinary item.

 

[cmesh]

I agree with your judgment--the cost doesn't represent a cost of the new loan, but a cost of terminating the old loan.

 

[Fidget]

Depending on the whole situation, it might be an onerous contract - ie, being out of the contract is economically in the interests of the business, in which case it would be feasible to provide for the cost of getting out of it, rather than expense it full in the current period.

That's based on IFRS, mind you.

 

[Counterofbeans]

I agree with your judgment--the cost doesn't represent a cost of the new loan, but a cost of terminating the old loan.

Agree. It's a stretch to try and capitalize those expenses.