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Company A has determined that the fair value of the noncontrolling interest is $1 million. The entity-specific value of the asset(s) received differs from the entity-specific value of the asset(s) transferred, and the difference is significant in relation to the fair values of the assets exchanged. 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. Revenue from Contracts with Customers (Topic 606), Company name must be at least two characters long. 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.. AB"& a{YH( k!9h#ADX4JJ"XTr Mt0Dz iKZ The Board did not intend to establish an exception to the revenue requirements in Topic 606 for transactions in collaborative arrangements. However, the basis for conclusions of Update 2014-09 explains that transactions with partners or participants in a collaborative arrangement can be within the scope of Topic 606 if the counterparty meets the definition of a customer for some or all parts of the arrangement. In some cases, a vendor provides consideration to resellers to reimburse them for sales incentives (e.g., rebates or coupons) offered to end customers to stimulate consumer demand for the vendors products. 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. Each member firm is a separate legal entity. The Board decided not to include recognition and measurement guidance for nonrevenue transactions in the amendments. We generally believe the subsequent amortization of a favorable or unfavorable revenue contract should be recognized within the income statement as contra-revenue or revenue, respectively. Asset acquisitions may includecontingent consideration, which represents an obligation of the acquirer to transfer additional assets or equity interests to the seller if future events occur or conditions are met. All rights reserved. These provisions are generally grouped within SG&A. The scope of ASC 946-605 is defined as "all . Consideration transferred should be allocated between the asset acquisition transaction and any separate transactions on a relative fair value basis. In the pre-agenda research phase, the Board considered including both collaborative arrangements within the scope of Topic 808 and arrangements with similar economics that are structured in a separate legal entity. BC27. The Board considered whether a project scope limited only to arrangements conducted outside a legal entity could compound existing differences in accounting models for arrangements that may have similar characteristics but are conducted within a legal entity. The revenue guidance only applies if the counterparty to the contract is a customer. In the period in which a collaborative arrangement is entered into (which may be an interim period) and all annual periods thereafter, a participant to a collaborative arrangement shall disclose all of the following: Information related to individually significant collaborative arrangements shall be disclosed separately. Immediately prior to the acquisition, Company A would remeasure the PHEI to fair value, recognizing a gain on remeasurement of $400,000 ($500,000 acquisition date fair value less carrying value of $100,000). 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. Discover how EY insights and services are helping to reframe the future of your industry. Follow the guidance for business combinations (. Obligations of the acquirer to transfer additional assets or equity interests based only upon the passage of time do not represent contingent consideration and instead may represent seller financing. BC5. Buy and sell stamps from USSR. FSP Corp would likely conclude in this fact pattern that the reimbursement relates to specific, incremental, and identifiable costs incurred in selling Toy Companys products. 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 allocation of indirect costs (e.g., fixed production overheads) should be based on normal capacity, which is defined in. <>/ExtGState<>/Font<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> Water Company provides FSP Corp with $10,000 to ensure that its products receive prominent placement on store shelves (that is, it pays a slotting fee). We generally believe the depreciation or amortization of these assets should be recognized as a cumulative catch up adjustment, as if the additional amount of consideration that is no longer contingent had been accrued from the outset of the arrangement. b. Additionally, some respondents asked for examples that would have included provisions more representative of collaborative arrangements seen in practice, such as upfront payments and licenses. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. All rights reserved. Asset acquisitions in which the consideration given is cash are measured by the amount of cash paid, which generally includes the transaction costs of the asset acquisition. 848-20 Contract Modifications. See. Accounting Standards Codification (ASC) Topic 808, Collaborative Arrangements, provides guidance for income statement presentation, classification and disclosures related to collaborative arrangements. A creditor that measures impairment based on the present value of expected future cash flows is permitted to report the entire change in present value as bad-debt expense. For non-SEC filers, ASC 855-10-25-2 indicates that subsequent events are events that occur after the balance sheet date but before the reporting entity's financial statements are available to be issued. However, some respondents noted that diversity in practice related to collaborative arrangements will continue to exist given the diverse nature of those arrangements. The Board did not address the accounting for transactions with a collaborative arrangement participant that are directly related to third-party sales of either collaborative arrangement participant. of Professional Practice, KPMG US. The agenda request asked that the Board consider providing recognition and measurement guidance for nonrevenue transactions between collaborative arrangement participants. Some respondents requested that the Board clarify certain aspects of the proposed amendments. ASU 2018-18Collaborative arrangements (Topic 808)Clarifying the interaction between Topic 808 and Topic 606. Alternatively, a creditor may report the change in present value attributable to the passage of time as interest income. The carrying value of Company As investment is $100,000 and its fair value is $500,000. This content is copyright protected. BC18. The Board also acknowledged the need to clarify the items in the agenda request on a timely basis given the effective date of Topic 606. Please reach out to, Effective dates of FASB standards - non PBEs, Business combinations and noncontrolling interests, Equity method investments and joint ventures, IFRS and US GAAP: Similarities and differences, Insurance contracts for insurance entities (post ASU 2018-12), Insurance contracts for insurance entities (pre ASU 2018-12), Investments in debt and equity securities (pre ASU 2016-13), Loans and investments (post ASU 2016-13 and ASC 326), Revenue from contracts with customers (ASC 606), Transfers and servicing of financial assets, Compliance and Disclosure Interpretations (C&DIs), Securities Act and Exchange Act Industry Guides, Corporate Finance Disclosure Guidance Topics, Center for Audit Quality Meeting Highlights, Insurance contracts by insurance and reinsurance entities, Property, plant, equipment and other assets, {{favoriteList.country}} {{favoriteList.content}}, follow the guidance for business combinations and measure NCI at fair value on the date of acquisition in accordance with. In addition, the amendments in this Update provide more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. The Board clarified that an entity should first determine whether the entire collaborative arrangement is a contract with a customer or whether it is entirely within the scope of other GAAP. Clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context ofa unit of account. Company A determines that the transaction should be accounted for as an asset acquisition, as the legal entity acquired does not constitute a business. 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. 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. Examples of transactions with a collaborative arrangement participant that are directly related to sales to third parties of either participant may include (a) sales of production inputs or other items to a collaborative arrangement participant that are eventually sold to a third party or (b) profit share receivables from collaborative arrangement participants for sales to third parties. Such disclosure shall include research and development costs incurred for a computer software product to be sold, leased, or otherwise marketed. endobj An entity should disclose its election. Company A acquires a group of assets that does not constitute a business for $100 million from Company B. This chapter describes the presentation and disclosure requirements and provides examples of common related party relationships and transactions. b. Not all depreciation of manufacturing productive assets can be absorbed into inventory. Reporting entities that receive reimbursements of research and development expenses from another party may question whether those reimbursements should be treated as revenue or an offset to expense. The Board rejected including within the scope of this project collaborative-type arrangements structured in a separate legal entity. Reporting entities that engage in nonmonetary transactions are required by. Consider removing one of your current favorites in order to to add a new one. See. Are you still working? Therefore, the reseller should recognize reimbursements for vendors sales incentives that meet the criteria in. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. PwC. Where depreciation and amortization is classified in the statement of operations depends on therelatedassets function. Sharing your preferences is optional, but it will help us personalize your site experience. See, If the amount of consideration received from the vendor exceeds the standalone selling price of the distinct good or service that the reporting entity transfers to the vendor, the reporting entity should account for the excess amount pursuant to the general principle for vendor consideration (i.e., as a reduction of the purchase price of the goods or services acquired from the vendor). 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.". The Board decided this to further emphasize the implications of the Boards decision to require an entity to apply all the accounting requirements in Topic 606 and to prevent diversity in how and when transactions in collaborative arrangements are presented as revenue. 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. 1 0 obj endstream endobj 1369 0 obj <>/Metadata 136 0 R/Outlines 177 0 R/PageLayout/OneColumn/Pages 1360 0 R/StructTreeRoot 254 0 R/Type/Catalog>> endobj 1370 0 obj <>/Font<>>>/Rotate 0/StructParents 0/Type/Page>> endobj 1371 0 obj <>stream 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. Early adoption is permitted, including adoption in any interim period, (1) for public business entities for periods for which financial statements have not yet been issued and (2) for all other entities for periods for which financial statements have not yet been made available for issuance. The reporting entity should apply judgment in determining whether a production level is within the range of normal capacity considering various business- and industry-specific factors. Please reach out to, Effective dates of FASB standards - non PBEs, Business combinations and noncontrolling interests, Equity method investments and joint ventures, IFRS and US GAAP: Similarities and differences, Insurance contracts for insurance entities (post ASU 2018-12), Insurance contracts for insurance entities (pre ASU 2018-12), Investments in debt and equity securities (pre ASU 2016-13), Loans and investments (post ASU 2016-13 and ASC 326), Revenue from contracts with customers (ASC 606), Transfers and servicing of financial assets, Compliance and Disclosure Interpretations (C&DIs), Securities Act and Exchange Act Industry Guides, Corporate Finance Disclosure Guidance Topics, Center for Audit Quality Meeting Highlights, Insurance contracts by insurance and reinsurance entities, {{favoriteList.country}} {{favoriteList.content}}, The accounting policy selected for reporting advertising, indicating whether such costs are expensed as incurred, or the first time the advertising takes place, The total amount charged to advertising expense for each period an income statement is presented, Information about the nature and purpose of its collaborative arrangements, Its rights and obligations under the collaborative arrangements, The accounting policy for collaborative arrangements in accordance with Topic 235. 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