Credit Card Origination Costs, Present Value of Future Profits and Estimated Mine Worker Benefit Payments

By Volkert, Linda A. | Journal of Accountancy, May 1993 | Go to article overview

Credit Card Origination Costs, Present Value of Future Profits and Estimated Mine Worker Benefit Payments


Volkert, Linda A., Journal of Accountancy


Statement on Auditing Standards no. 69, The Meaning of "Present Fairly in Conformity With Generally Accepted Accounting Principles" in the Independent Auditor's Report, identifies Financial Accounting Standards Board emerging issues task force (EITF) consensuses as sources of established generally accepted accounting principles.

This month's column lists 1992 and 1993 EITF consensuses adopted from November 19, 1992, through March 16, 1993 (see the sidebar on page 102). In addition, three of the consensuses are summarized: credit card origination costs, accounting for the present value of future profits resulting from the acquisition of a life insurance company and accounting for estimated payments required by the Coal Industry J?etiree Health Benefit Act of 1992. The sitmmayies are presented in order of importance of applicability.

EITF Abstracts, copyrighted by the FASB, is available in soft-cover and loose-leaf versions and may be obtained by contacting the FASB order department at 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut 06856-5116. Phone: (203) 847-0700.

ISSUE NO. 92-5

Issue no. 92-5, Amortizatiotz Period for Net Deferred Credit Card Origination Costs, affects enterprises that issue credit cards (credit cards, debit cards, bank charge cards and other similar cards). Credit card issuers often incur direct loan origination costs (as defined in paragraph 6 of FASB Statement no. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases) and may charge cardholders an origination fee in connection with the issuance of a credit card and periodic renewal fees for the continued extension of credit card privileges. Some task force members noted costs incurred to build customer relationships typically are expensed as they are incurred.

The issue is the proper amortization period for qualified deferred credit card origination costs of cards with fees (including credit cards with fees waived for a limited time period) and without fees. This issue does not address

* Accounting for credit card origination costs related to the issuance of private label credit cards by an enterprise for the purchase of its own goods or services on its own premises.

* Amortization of a premium paid when an enterprise purchases a credit card portfolio from third parties (see Issue no. 88-20, Difference between Initial Investment and Principal Amount of Loans in a Purchased Credit Card Portfolio).

* Costs of acquiring individual credit card accounts from a third-party originator (see Issue no. 93-1, Accounting for Individual Credit Card Acquisitions, which was pending at this writing).

The EITF reached a consensus that credit card origination costs that qualify for deferrat under paragraph 6 of FASB Statement no. 91 should be netted against the related credit card fee, if any, an the net amount should be amortized on a straight-line basis over the privilege period. The length of this period depends On whether fee is charged. Significance for this purpose is determined based on the amount of the fee relative to the related costs.) If a significant fee is charged, the privilege period is the period the cardholder. is entitled to use the credit card. If there is no significant fee, the privilege period is one year.

In addition, the EITF reached a consensus that, for credit card fees and costs for both purchased and originated credit cards, all entity should disclose its accounting policy, the net amount capitalized at the balance sheet date and the amortization period(s).

ISSUE NO. 92-9

Issue no. 92-9, Accounting for the Present Value of Future Profits Resulting from the Acquisition a Life Insurance Company, applies to an enterprise that acquires a life insurance company in a purchase accounting transaction under Accounting Principles Board Opinion no. 16, Business Combinations. …

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