Deferred financing cost
Encyclopedia
Deferred financing costs or debt issuance costs is an accounting concept meaning costs associated with issuing debt (loans and bonds), such as various fees and commissions paid to investment banks, law firm
s, auditors, regulators, and so on. Since these payments generate future benefits, they are treated as an asset. The costs are capitalised, reflected in the balance sheet
as an asset, and amortised
over the finite life of the underlying debt instrument. The unamortized amounts are included in other assets in the accompanying consolidated balance sheets. Early debt repayment results in expensing these costs.
In case of issuing securities without specific maturity
, such as perpetual preferred stock
, financing costs are not capitalised and expensed immediately.
Tax Treatment
For U.S. federal income tax purposes, DFC are...
Law firm
A law firm is a business entity formed by one or more lawyers to engage in the practice of law. The primary service rendered by a law firm is to advise clients about their legal rights and responsibilities, and to represent clients in civil or criminal cases, business transactions, and other...
s, auditors, regulators, and so on. Since these payments generate future benefits, they are treated as an asset. The costs are capitalised, reflected in the balance sheet
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...
as an asset, and amortised
Depreciation
Depreciation refers to two very different but related concepts:# the decrease in value of assets , and# the allocation of the cost of assets to periods in which the assets are used ....
over the finite life of the underlying debt instrument. The unamortized amounts are included in other assets in the accompanying consolidated balance sheets. Early debt repayment results in expensing these costs.
In case of issuing securities without specific maturity
Maturity (finance)
In finance, maturity or maturity date refers to the final payment date of a loan or other financial instrument, at which point the principal is due to be paid....
, such as perpetual preferred stock
Preferred stock
Preferred stock, also called preferred shares, preference shares, or simply preferreds, is a special equity security that has properties of both an equity and a debt instrument and is generally considered a hybrid instrument...
, financing costs are not capitalised and expensed immediately.
Tax Treatment
For U.S. federal income tax purposes, DFC are...