Loan arrangement fee1/27/2024 ![]() There are several potential costs for the financing arrangement that includes the following, So, it’s a wise decision only to amortize the cost when the loan fees are material for the company. ![]() However, it’s important to note that amortization requires the business to handle extensive records. The amortization of the fees helps to ensure that cost is allocated to the periods in which benefit is obtained from the loan. Hence, as per the matching concept, the loan should be amortized over the life of the loan. The concept of amortization arises because a loan is usually long-term and does not relate to a single (current) accounting period. However, the question arises if related fees should be charged in a single (current) accounting period or spread over the life of the loan. These fees need to be recorded in the financial statement. When the business enters into the loan agreement or opts to restructure an existing loan, fees are associated with the process. However, if the amount is material, it must be amortized over the life of the loan to comply with the matching principle of accounting. If the fees for obtaining the loan are not material, the business may charge in the current period. The expenses may include the appraisal fees, registration charges, accounting fees, regulator charges, loan marketing expenses, regulator fees, and all other related expenses. ![]() ![]() Sometimes the business has to bear significant expenses in the process to raise the finance. ![]()
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