FASB issues ASU on purchased loans
Defining Issues | November 2025
The ASU expands the use of the gross-up method under ASC 326 to certain acquired loans beyond those that are purchased financial assets with credit deterioration.
Applicability
- All entities
Relevant dates
| Effective date | All entities |
|---|---|
| Annual periods – Fiscal years beginning after | December 15, 2026 |
| Interim periods – In fiscal years beginning after | December 15, 2026 |
| Early adoption permitted? |
|
| Transition method | Prospectively for acquisitions on or after the initial application date. |
Key impacts
The ASU expands the use of the gross-up method to certain acquired loans beyond those that are purchased financial assets with credit deterioration. The gross-up method records an allowance for credit losses at the acquisition date with an offsetting entry to the asset’s amortized cost basis.
The ASU does the following:
- Applies the gross-up method to acquired non-purchased credit deteriorated (PCD) assets that are ‘purchased seasoned loans’ and provides criteria for determining whether acquired loans qualify as purchased seasoned loans;
- For purchased seasoned loans, eliminates the Day 1-credit loss expense and reduces interest income recognized in subsequent periods (because the gross-up method will now apply to those loans);
- Keeps the guidance for PCD assets unchanged; and
- Results in narrow subsequent measurement differences between purchased seasoned loans and PCD assets.
Report contents:
- Source and applicability
- Fast facts, impacts, actions
- Background
- Purchased seasoned loan definition
- Involved in the origination assessment
- Accounting for purchased seasoned loans
- Effective dates and transition
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FASB issues ASU
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