This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. The Board concluded that the expected benefits of making the targeted improvements justify the expected costs. We believe the acquirer in an asset acquisition should choose one of the following accounting policy elections on the acquisition date: In the absence of guidance for previously held equity interests in an asset acquisition, other measurement considerations may be acceptable (e.g., iterative equation). ]bqi"w8=8YWf8}3aK txg^+v!a{Bhk 5YliFeT?}YV-xBmN(}H)&,# o0 endstream endobj 1376 0 obj <>stream EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. +1 816-802-5840. You can set the default content filter to expand search across territories. ASC 845 Nonmonetary Transactions This Topic notes that the "amount of monetary assets or liabilities exchanged generally provides an objective basis for measuring the cost of nonmonetary assets or services received by an entity as well as for measuring gain or loss on nonmonetary assets transferred from an entity." endstream endobj 1374 0 obj <>stream These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. Overall, respondents supported the Boards efforts to clarify when certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606. The Board also considered providing a nonrevenue accounting model because its decisions could result in more transactions that would need recognition and measurement guidance that does not exist in Topic 808. bA|?G4l#z@(NZ}\#FF!5B^ J`6kj"^t+Vgkvow$X#L+#(]U(.-bY7\bXDG`!#!| A AV af$2-!\lA`<=a Q a~+ixzaaBdO?5a# M#1P+3>iG&H[A 1gH72Cb1[fn0)LpZfr09(%Zfv0IL.bR 1tT!lRzgn+Vd[7EzO|(OO\2( q n|8,VO,{y6/NUW'K An entity may elect to apply the amendments in this Update retrospectively either to all contracts or only to contracts that are not completed at the date of initial application of Topic 606. All rights reserved. An entity would still be expected to follow the disclosure requirements under Topic 606 for only those transactions that are within the scope of Topic 606. EY updates FRD on income taxes EY has updated its Financial reporting developments (FRD) publication on income taxes. This content is copyright protected. The EITF did not provide specific recognition and measurement guidance because of the difficulty in developing a single accounting model that could be applied to the wide range of different collaborative arrangements. BC18. A nonmonetary exchange shall be measured based on the recorded amount (after reduction, if appropriate, for an indicated impairment of value as discussed in paragraph 360-10-40-4) of the nonmonetary asset(s) relinquished, and not on the fair values of the exchanged assets, if any of the following conditions apply: a. ASC 848-20 notes that it "provides optional expedients for contract modifications undertaken because of reference rate reform. This Topic notes that it "only provides links to guidance on accounting for the cost of sales and services in other applicable Subtopics as the asset liability model used in the Codification generally results in the inclusion of that guidance in other Topics.". endobj The SEC staff has acknowledged that, in some cases, a reporting entity may be able to support more than one conclusion based on the existing accounting literature. USSR stamp catalogue. Although the TSA stipulates that the services will be performed by Company B at no cost to Company A, the substance of the transaction is that a portion of the consideration for the purchase of the assets relates to the transition services that will be provided in the future. Disclosure of unusual amounts, net of applicable income taxes, and their earnings per share effect, net of applicable income taxes, is permissible only in the footnotes. Company A pays $9 million in cash and $100,000 in direct transaction costs. Also, the consideration is not a reimbursement of specific, incremental, and identifiable costs incurred by FSP Corp to sell the vendors products. The cost of the acquisition is then allocated to the assets acquired based on their relative fair values (see. ASC 946-605 contains its own scope that is separate from the other Subtopics of ASC 946. Many respondents requested amendments that would have illustrated how the conclusions were reached. b. Buy and sell stamps from USSR. The Board agreed that the amendments will benefit users by reducing diversity in practice by clarifying that certain transactions between collaborative arrangement participants should be accounted for in accordance with the guidance in Topic 606 and by clarifying certain presentation requirements. For purposes of this guidance, the phrase vendor's sales incentive offered directly to consumers is limited to a vendor's incentive that meets all the following criteria: PwC. The scope of ASC 946-605 is defined as "all . Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. The acquirer and seller in an asset acquisition may have a preexisting relationship before negotiations for the exchange transaction begin that is effectively settled as a result of the asset acquisition. Where depreciation and amortization is classified in the statement of operations depends on therelatedassets function. Effectively, the reseller is acting as the vendors agent when it provides the incentives to end consumers. The Board ultimately decided that the scope of the revenue guidance in Topic 606 should be aligned for units of account inside and outside collaborative arrangements; that is, the revenue guidance in Topic 606 should be applied if the collaborative arrangement participant is a customer in the context of a given unit of account. %PDF-1.5 % 1 0 obj /Type /Catalog /Pages 2 0 R /OutputIntents [ 6143 0 R ] /PageLabels /Nums [ 0 >> 16 /S /D /St 1 >> 875 >> ] >> /ViewerPreferences /FitWindow true /DisplayDocTitle true >> /Lang (eng) /MarkInfo /Marked true >> /StructTreeRoot 6144 0 R /Metadata 8802 0 R >> endobj 2 0 obj /Type /Pages /Kids [ 9 0 R 11 0 R 13 0 R 15 0 R 17 0 R 19 0 R 21 0 R 23 0 R 25 0 R 27 0 R 29 0 R . If the consideration transferred is in the form of nonfinancial or in substance nonfinancial assets within the scope of. NCIs may arise in an asset acquisition when the acquirer obtains a controlling financial interest, but less than 100%, of an entity that does not meet the definition of a business. In addition, the Board decided to allow the same practical expedients in paragraph 606-10-65-1(h) that are permitted for the modified retrospective transition method in paragraph 606-10-65-1(d)(2). The Board decided to require a retrospective transition approach whereby an entity would be required to apply the amendments in this Update retrospectively as of an entitys adoption date of Topic 606 because the amendments relate directly to Topic 606. This decision ultimately aligns with the accounting model in Topic 808, which is a residual model similar to Topic 606, indicating that an entity should first look to other guidance for separation. The Board also considered whether to provide guidance for two additional areas that were raised in the agenda request: (a) unit of account and (b) recognition and measurement guidance for transactions not within the scope of the revenue guidance (that is, nonrevenue transactions). To clarify that transactions with collaborative arrangement participants directly related to third-party sales were not within the scope of the project, certain proposed amendments included language that reference transactions directly related to sales to third parties. Alternatively, a creditor may report the change in present value attributable to the passage of time as interest income. Therefore, current practice for those transactions is unchanged. Judgment is required to determine the elements of an arrangement that should be accounted for as part of the exchange transaction and elements that should be accounted for separately. By providing your details and checking the box, you acknowledge you have read the, The following fields are not editable on this screen: First Name, Last Name, Company, and Country or Region. See Appendix G of the publication for a summary of the updates. We use cookies to personalize content and to provide you with an improved user experience. 411 0 obj <>/Filter/FlateDecode/ID[<308AB878F91284439A4E8CDD51F56156>]/Index[392 58]/Info 391 0 R/Length 100/Prev 303713/Root 393 0 R/Size 450/Type/XRef/W[1 3 1]>>stream BC2. Topic 808 does not provide comprehensive recognition or measurement guidance for collaborative arrangements, and the accounting for those arrangements is often based on an analogy to other accounting literature or an accounting policy election. Under that model, once a collaborative arrangement participant determined that an identified unit of account was outside the scope of Topic 606, it would recognize a transaction as either a reduction of cost or other income depending on whether the nature of the underlying transaction was related to a specific and identifiable cost incurred in accordance with the collaboration agreement (using concepts from Topic 606). It specifically addresses the accounting for modifications of contracts within the scope of Topics 310 on receivables, 470 on debt, and 840 and 842 on leases and Subtopic 815-15 on . Various Printing options, including printer-friendly utility for viewing . The Board concluded that certain transactions between collaborative arrangement participants that are unrelated to sales to third parties (that is, related to developing an asset rather than selling a completed product) could result in revenue under Topic 606 consistent with paragraph BC55 of Update 2014-09. Furthermore, Board members questioned whether the arrangements involving separate legal entities are sufficiently similar to warrant considering expanding the scope of the collaborative arrangement guidance in Topic 808. EY helps clients create long-term value for all stakeholders. Download from EY Accounting Link # ASC 840 # leases # US GAAP Please refer to your advisors for specific advice. Normal capacity is the production expected to be achieved over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. In March 2015, the FASB received an agenda request asking the Board to clarify the interaction between Topic 606 and Topic 808 and to provide recognition and measurement guidance for collaborative arrangements to address certain areas of diversity. c.The transaction lacks commercial substance (see the following paragraph). However, to address the concerns that the amendments in this Update potentially could lead to more transactions without recognition and measurement guidance in Topic 808, the Board decided to continue to permit an entity to apply the revenue guidance in Topic 606 by analogy or, if there is no appropriate analogy, as a policy election, without requiring the entity to apply all the guidance in Topic 606, as long as it presents the transaction separate from revenue recognized from contracts with customers. The reseller is subject to an agency relationship with the vendor, whether expressed or implied, in the sales incentive transaction between the vendor and the consumer. Accordingly, $95 million of the consideration transferred would be allocated to the group of assets acquired and $5 million would be allocated to the TSA, based on their relative fair values. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The amendments improve comparability by allowing the presentation of the units of account in collaborative arrangements that are within the scope of Topic 606 together with revenue accounted for under Topic 606. Meet other stamp collectors interested in USSR stamps. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. 1 0 obj The agenda request asked the Board to clarify if, and when, transactions in a collaborative arrangement were within the scope of the revenue guidance in Topic 606. Discover how EY insights and services are helping to reframe the future of your industry. EY FRD Lease accounting - ASC 840 alishan June 5, 2022 EY US GAAP Publications, US GAAP EY FRD publication on accounting for leases under ASC 840 has been updated to clarify and enhance our interpretive guidance. An exchange with another entity (reciprocal transfer) that involves principally nonmonetary assets or liabilities. Financial statement presentation. Like the depreciation or amortization of tangible long-lived assets, the amortization of intangibles may be included in operating expenses or cost of sales, depending on the use of the asset. In addition to cookies that are strictly necessary to operate this website, we use the following types of cookies to improve your experience and our services: Functional cookies to enhance your experience (e.g. USSR stamp catalogue. _W+ All rights reserved. Reporting entitiesshould evaluate the facts and circumstances of each arrangement, apply reasonable judgment consistently, and disclose the method of accounting used as well as the reason(s) that the chosen method is appropriate. The income statement classification and amounts attributable to transactions arising from the collaborative arrangement between participants for each period an income statement is presented. Q+ Reporting entities may have flexibility as to how they present bad debt expense (i.e., expense associated with changes in the provision for receivables). ASC 850, Related Party Disclosures, is the primary accounting guidance on this topic, coupled with certain SEC guidance. 0 Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. On April 26, 2018, the FASB issued a proposed Accounting Standards Update. The amendments in this Update make targeted improvements to generally accepted accounting principles (GAAP) for collaborative arrangements as follows: The amendments in this Update provide guidance on whether certain transactions between collaborative arrangement participants should be accounted for with revenue under Topic 606. Some respondents requested that the Board provide additional guidance on how to determine whether a collaborative arrangement participant is a customer. [0p?'7l:u# YKD~2.o},P[ V p:dN#|eA^{k#l[0%8gT+ Content copyrighted by Financial Accounting Foundation may not be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Financial Accounting Foundation. Buy and sell stamps from USSR. A change in contingent consideration impacts the cost basis of acquired assets, which may also impact the income statement through subsequent accounting for the acquired asset. BC29. The Board decided not to add additional examples or additional aspects to the existing examples because doing so would have been beyond the projects objective and scope. i8 S:HlvSfGHANN#3=b_"Y2WyI1i23"\!`TX@[lY}6QhX1VZ)}k1]-1_|;(vY RQo`e&Z`=Q+~~~J#*p*[lf$EvOdz[?vY .Rmmt(`NNM|_oE~g]`|wqZhBLSo?r|DCImT _WsFl63Z53;IQa7)amgIn/& J_s?P All rights reserved. Consider removing one of your current favorites in order to to add a new one. PwC. The reseller may in turn reduce the price paid by the end consumer at the point of sale and will later receive reimbursement from the vendor. In both scenarios, the reseller generally has no control over which consumers receive or choose to apply these incentives. The Board decided to permit an entity to early adopt the amendments in this Update, including adoption in any interim period, if the entity has already adopted or is concurrently adopting Topic 606. BC28. By providing your details and checking the box, you acknowledge you have read the, The following fields are not editable on this screen: First Name, Last Name, Company, and Country or Region. This content is copyright protected. After considering feedback obtained through additional research and outreach, the Board added a project to its agenda and limited the projects scope to targeted improvements that would clarify when transactions between collaborative arrangement participants should apply the revenue guidance in Topic 606. For more information about our organization, please visit ey.com. Similarly, the EPS effects of those items shall not be presented on the face of the income statement. ASC 946-10 notes that the the Topic "only provides incremental industry-specific guidance for the entities that meet the assessment of investment company status" described in ASC 946-10-15-4 through 15-9. However, the Board continues to believe that the principles in Topic 606 might be appropriate to apply to a collaborative arrangement by analogy even if the counterparty is not considered a customer, provided there is no other more relevant authoritative guidance. It includes reasons for accepting certain approaches and rejecting others. 2 0 obj The agenda request asked that the Board consider providing recognition and measurement guidance for nonrevenue transactions between collaborative arrangement participants. All rights reserved. 78uZE~*x!o]|)Q/@;,%4yM``1mnigKNfs8YfU_)lBLf&hLU XpSTS E>AC If the consideration given is nonfinancial assets or in substance nonfinancial assets within the scope of Subtopic 610-20 on gains and losses from the derecognition of nonfinancial assets, the assets acquired shall be treated as noncash consideration and any gain or loss shall be recognized in accordance with Subtopic 610-20. The revenue guidance only applies if the counterparty to the contract is a customer. On the Radar: Foreign currency accounting. In December 2017, the FASB hosted two workshops for preparers and auditors to provide feedback on the operability of the staffs potential nonrevenue model. BC26. hko6 How should Company A account for the asset acquisition, including the noncontrolling interest? The Board did not expand the scope to include the accounting for transactions with collaborative arrangement participants directly related to sales to third parties because feedback from entities and accounting firms indicated that the accounting for those transactions was not challenging and was relatively consistent among entities. Financial Accounting Foundation claims no copyright in any portion hereof that constitutes a work of the United States Government. The Board noted that current guidance allows an entity to evaluate the terms of a collaborative arrangement to determine how best to account for and present those transactions. The amount of compensation earned and costs incurred under such contracts for each period for which an income statement is presented. BC13. BC23. The basis for conclusions also explains that the principles in Topic 606 might be appropriate to apply to a collaborative arrangement by analogy even if the counterparty is not considered a customer, provided no other Topic applies. Impairment of in-process research and development costs initially capitalized as part of a business combination should also be classified in the research and development expense line. A noncontrolling interest (NCI) is the equity interest in a subsidiary that is not attributable, directly or indirectly, to the parent. The amount of monetary assets or liabilities exchanged in an asset acquisition generally provides an objective basis for measuring the fair value of the assets acquired. Before the issuance of Topic 606, stakeholders indicated that revenue from collaborative arrangements may have included (1) revenue that was recognized in accordance with Topic 605, Revenue Recognition, (2) revenue that was recognized through analogy to the guidance in Topic 605, and (3) revenue that was recognized through the application of a policy election. Follow along as we demonstrate how to use the site. Company A acquires a group of assets that does not constitute a business for $100 million from Company B. Click below to also try our advanced search: Advanced Search. Certain research and development transactions may be structured as collaborative arrangements subject to the guidance in, Reporting entities should evaluate payments related to collaborative arrangements based on the nature and contractual terms of the arrangement as well as the nature of the reporting entitys business operations. You can set the default content filter to expand search across territories. AB"& a{YH( k!9h#ADX4JJ"XTr Mt0Dz iKZ However, if the consideration given is not in the form of cash (that is, in the form of noncash assets, liabilities incurred, or equity interests issued) and no other generally accepted accounting principles (GAAP) apply (for example, Topic 845 on nonmonetary transactions or Subtopic 610-20), measurement is based on either the cost which shall be measured based on the fair value of the consideration given or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable. For all other entities, consistent with the Private Company Decision-Making Framework, the Board decided that the amendments in this Update should be effective for fiscal years beginning after December 15, 2020, and for interim periods within fiscal years beginning after December 15, 2021. BC15. FSP Corp enters into a supply contract with Water Company to purchase water bottles for $100,000. Regina Croucher. Company A has previously made an accounting policy election to analogize to the business combinations guidance and measure noncontrolling interests at fair value on the date of acquisition. See. X[7? The observable market price of an impaired loan or the fair value of the collateral of an impaired collateral-dependent loan may change from one reporting period to the next. There is no guidance outside of a business combination for the settlement of preexisting relationships. In determining when transactions between collaborative arrangement participants under Topic 808 are within the scope of the revenue guidance in Topic 606, the Board did not intend to develop new or different requirements from the requirements of Topic 606. See more on AccountingLink Subscribe to AccountingLink updates, Do Not Sell or Share My Personal Information. 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