Summary of Statement No. 118

Accounting by Creditors for Impairment of a Loan—Income Recognition and Disclosures—an amendment of FASB Statement No. 114 (Issued 10/94)


This Statement amends FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan, to allow a creditor to use existing methods for recognizing interest income on an impaired loan. To accomplish that, it eliminates the provisions in Statement 114 that described how a creditor should report income on an impaired loan (paragraphs 17-19).

This Statement does not change the provisions in Statement 114 that require a creditor to measure impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate, or as a practical expedient, at the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent.

This Statement amends the disclosure requirements in Statement 114 to require information about the recorded investment in certain impaired loans and about how a creditor recognizes interest income related to those impaired loans.

This Statement is effective concurrent with the effective date of Statement 114, that is, for financial statements for fiscal years beginning after December 15, 1994, with earlier application encouraged.