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The following scenarios describe ledger entries for paydowns when you use asset-level expected credit loss (ECL) with a GAAP accounting basis.
Paydown for US GAAP – AFS
The entity purchases one lot of a loan-backed security, par of 1,000 and a cost of $900 and a factor of 1. The lot subsequently has an expected credit losses of $30 applied to it. Ledger entries follow for a GAAP accounting basis with an AFS (Available for Sale) regulatory category.
Ledger Account | Ledger Acct Name | Dr | Cr |
13100001001010000100 | COST OF INVESTMENTS-AFS | 900 | |
2002000100 | INVESTMENT PAYABLE | 900 | |
53010009025001000902 | IMPAIRMENT EXPENSE FOR ECL-AFS | 30 | |
13100104191010010419 | ALLOWANCE FOR ECL-AFS | 30 |
10% of the position is paid down with a gain of $10. Because 10% of the position is being closed, $3 of ECL is proportionally reduced. Note that the gain/loss is not impacted by the reduction in ECL.
Principal Loss on Paydown Processing Flag (Tag 2925) on Accounting Basis = Realized Gain/Loss
Ledger Account | Ledger Acct Name | Dr | Cr |
16100001001010000100 | COST OF INVESTMENTS-AFS | 90 | |
1002000100 | INVESTMENT RECEIVABLE | 100 | |
5301000902 | IMPAIRMENT EXPENSE FOR ECL-AFS | 3 | |
13100104191010010419 | ALLOWANCE FOR ECL-AFS | 3 | |
30060001014004000101 | REALIZED GAIN ON INVESTMENTSGAINS-AFS | 10 | |
33060001033006000103 | REALIZED GAINS-AFS-FROM OCI | 10 | |
33030003013003000301 | UNREALIZED GAINS-AFS-OCI | 10 |
Principal Loss on Paydown Processing Flag (tag 2925) on Accounting Basis = Accelerated Amortization
Ledger Account | Ledger Acct Name | Dr | Cr |
16100001001010000100 | COST OF INVESTMENTS-AFS | 90 | |
1002000100 | INVESTMENT RECEIVABLE | 100 | |
53010009025001000902 | IMPAIRMENT EXPENSE FOR ECL-AFS | 3 | |
13100104191010010419 | ALLOWANCE FOR ECL-AFS | 3 | |
4001000401 | AMORTIZATION OF PREMIUM | 10 |
Paydown for US GAAP – HTM
The entity purchases one lot of a loan-backed security, par of 1,000 and a cost of $900 and a factor of 1. The lot subsequently has an expected credit losses of $30 applied to it. Ledger entries follow for a GAAP accounting basis with an HTM (Held to Maturity) regulatory category.
Ledger Account | Ledger Acct Name | Dr | Cr |
13100001001010000100 | COST OF INVESTMENTS-HTM | 900 | |
2002000100 | INVESTMENT PAYABLE | 900 | |
55010009025001000902 | IMPAIRMENT EXPENSE FOR ECL-HTM | 30 | |
15100104191010010419 | ALLOWANCE FOR ECL-HTM | 30 |
Principal Loss on Paydown Processing Flag (tag 2925) on Accounting Basis = Realized Gain/Loss
Ledger Account | Ledger Acct Name | Dr | Cr |
16100001001010000100 | COST OF INVESTMENTS-HTM | 90 | |
1002000100 | INVESTMENT RECEIVABLE | 100 | |
55010009025001000902 | IMPAIRMENT EXPENSE FOR ECL-HTM | 3 | |
30060001014004000101 | REALIZED GAIN ON INVESTMENTSGAINS-HTM | 10 | |
15100104191010010419 | ALLOWANCE FOR ECL-HTM | 3 |
Principal Loss on Paydown Processing Flag (tag 2925) on Accounting Basis = Accelerated Amortization
Ledger Account | Ledger Acct Name | Dr | Cr |
16100001001010000100 | COST OF INVESTMENTS-HTM | 90 | |
1002000100 | INVESTMENT RECEIVABLE | 100 | |
55010009025001000902 | IMPAIRMENT EXPENSE FOR ECL-HTM | 3 | |
4001000401 | AMORTIZATION OF PREMIUM | 10 | |
15100104191010010419 | ALLOWANCE FOR ECL-HTM | 3 |