A purchased credit-deteriorated financial asset has experienced a more-than-insignificant deterioration in credit quality since origination under the applicable model. Its initial allowance and purchase-price accounting differ from an originated asset, so the standards date matters.
Separate price from the allowance
Under the current PCD path, the initial allowance is added to the purchase price to establish the asset's initial amortized-cost basis. Suppose an eligible loan is bought for $72,000 and has an $8,000 initial allowance. The initial amortized-cost basis is $80,000 before other required items. The $8,000 does not pass through first-day credit-loss expense under that bounded path.
The effective yield is based on the recognized basis and expected contractual cash flows under the applicable guidance. Later allowance changes follow the subsequent-measurement model.
Control the standards clock
Record the asset type, origination credit quality, purchase date, acquirer evidence, entity type, reporting period, adoption status, and transition method. ASU 2025-08 changes purchased-loan accounting for specified assets and future periods. An issued update is not automatically effective for every 2026 purchase.
Boundary and source
This page does not decide eligibility from a discount alone. Read ASC 326-20-30-13 for current PCD initial measurement. Use the linked ASU source to verify future-effective purchased-loan changes before applying them.
Put the concept to work
Understand this concept
- Explain purchase price, initial allowance, gross-up, noncredit discount or premium, effective yield, and later expected-loss changes for a supplied PCD asset.
Analyze this concept
- Analyze acquisition evidence, credit deterioration, purchase-date cash-flow expectations, asset scope, current PCD guidance, and the future-effective purchased-seasoned-loan amendment without blending them.
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Build on these ideas
- Expected credit loss — Understand
To understand this concept: Required. PCD initial measurement uses a distinct allowance interaction.
- Purchased financial asset with credit deterioration — Understand
To analyze this concept: Required. The standards-clock analysis preserves current and future models separately.
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Use this idea next
- Purchased financial asset with credit deterioration — Analyze
Required level here: understand. Required. The standards-clock analysis preserves current and future models separately.