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
1010000100
COST OF INVESTMENTS-AFS
900
2002000100
INVESTMENT PAYABLE
900
5001000902
IMPAIRMENT EXPENSE FOR ECL-AFS
30
1010010419
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
1010000100
COST OF INVESTMENTS-AFS
90
1002000100
INVESTMENT RECEIVABLE
100
5301000902
IMPAIRMENT EXPENSE FOR ECL-AFS
3
1010010419
ALLOWANCE FOR ECL-AFS
3
4004000101
REALIZED GAINS-AFS
10
3006000103
REALIZED GAINS-AFS-FROM OCI
10
3003000301
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
1010000100
COST OF INVESTMENTS-AFS
90
1002000100
INVESTMENT RECEIVABLE
100
5001000902
IMPAIRMENT EXPENSE FOR ECL-AFS
3
1010010419
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
1010000100
COST OF INVESTMENTS-HTM
900
2002000100
INVESTMENT PAYABLE
900
5001000902
IMPAIRMENT EXPENSE FOR ECL-HTM
30
1010010419
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
1010000100
COST OF INVESTMENTS-HTM
90
1002000100
INVESTMENT RECEIVABLE
100
5001000902
IMPAIRMENT EXPENSE FOR ECL-HTM
3
4004000101
REALIZED GAINS-HTM
10
1010010419
ALLOWANCE FOR ECL-HTM
3
Principal Loss on Paydown Processing Flag (tag 2925) on Accounting Basis = Accelerated Amortization
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