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Abstract
Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," becomes effective for financial statements issued for fiscal years beginning after December 15, 1994. The new accounting standard stipulates the manner by which a loss should be measured for certain impaired loans. According to SFAS No. 114, a loan loss may be measured based on the present value of the expected future cash flows discounted at the impaired loan's effective interest rate or, as a practical expedient, at its observable market price or the fair value of the collateral if the impaired loan is dependent. The choice is made on a loan-by-loan basis. SFAS No. 114 amends some FASB statements, including: 1. SFAS No. 5, "Accounting for Contingencies," and 2. SFAS No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings."