For financial statement purposes, the $50,000 cost would be an asset - something like "Debt Pool" - and you would calculate a portion to be recognized as an expense based on your total expected actual recoveries. For example, if you expect to actually receive $100,000, you would generate an expense of $.50 for each $1.00 actually received. Applied to your example, the income statement would show collections of $30,000 and amortization expense of $15,000 for a net of $15,000.

For tax purposes, we have always used the "recovery of basis" method due to the high risk nature of the asset. The $50,000 is not recorded as an expense but is offset dollar for dollar until it is fully recovered and then the balance is recognized as income as received. Applied to your example, the income statement would show collections of $30,000 and cost recovery of $30,000 for a net income of $0.

jon@jonacpa.com

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