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In: Accounting

Provide the answer to the questions and the citation from the FASB Accounting Cofification, in good...

Provide the answer to the questions and the citation from the FASB Accounting Cofification, in good form

-What are the guidelines for reporting legal costs?

Solutions

Expert Solution

The Specific citation that specifies the accounting treatment of legal costs is FASB 310-40-25-1, "Receivables troubled debt restructruing by creditors- recogination- legal fees.

Legal fees and other direct costs that a debtor incurs in granting an equity interest to a creditor in a troubled debt restructuring shall reduce the amount otherwise recorded for that equity interest accordingdingly. All other direct costs that a debtor incurs to effect a troubled debt restructuring shall be deducted in measuring gain on restructuring of payables or shall be included in expense for the period if no gain on restructuring is recognized.

Legal fees and other direct costs incurred by a creditor to effect a troubled debt restructuring shall be included in expense when incurred

Some of the views are from different sources that  “legal fees and other direct costs that a debtor incurs in granting an equity interest to a creditor in a troubled debt restructuring” always be included as extraordinary items whether or not the debtor recognizes a gain on restructuring. Issuing equity interests is not an extraordinary event for a business enterprise, however, and related costs are not extraordinary items under any existing authoritative literature. Deducting those costs from the proceeds of issue has been customary practice, and this Statement does not change that custom. But only costs of issuing the equity interest may be accounted for that way. All other direct costs of a troubled debt restructuring are expenses of the period of restructuring but shall be deducted from a gain, if any, on restructuring.


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