Q: You mentioned loan fees can be classified as an asset. Can you explain how that is allowable?
A: If the loan fees are levied for a long-term loan payable over multiple periods, they are considered an intangible asset, and the loan fee expense is recognized over a timeframe not to exceed the life of the loan. This treatment starts when the loan fees are paid in full at the outset of the loan but not expensed at that time. The fees are instead amortized or expensed over a period of time that may match the tenor of the loan. It's like a prepaid expense – something paid for in advance and then used up over time. Prepaid expenses are classified as an asset. Prepaid loan fees are classified as an intangible asset and used up over time.
Course overview: Understanding Financial Statements and Business Organizations