The Board also decided to limit the projects scope to (a) the accounting for the entity receiving consideration from the other collaborative arrangement participant (that is, the party potentially recording revenue) and (b) transactions not directly related to sales to third parties. 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. _lEVkJVJc5icEs A4 The Board rejected developing unit-of-account guidance that is specific to collaborative arrangements because that guidance would have applied to all of Topic 808, which would have been inconsistent with the Boards decision not to address a nonrevenue model in this project. Item added to 'My Purchases' Until you submit the order, another StampWorld user may purchase this item. A nonmonetary exchange has commercial substance if the entity's future cash flows are expected to significantly change as a result of the exchange. In addition, the agenda request asked the Board to consider amending the guidance in Topic 808 to address certain areas of diversity within collaborative arrangements, including how an entity should determine its units of account and how to account for transactions between collaborative arrangement participants that do not qualify as revenue transactions. 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. 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. The agreement also includes payment of an advertising allowance of $1,000 to FSP Corp by Toy Company. The amendments in this Update should be applied retrospectively to the date of initial application of Topic 606. Accordingly, the amendments in this Update do not result in any changes to the accounting for those transactions. FSP Corp should therefore recognize $1,000 as a reduction of the cost of its purchases from Toy Company and, using a systematic and rational allocation approach, recognize a corresponding reduction in costs of sales when the related products are sold. Therefore, an entity may still analogize to those principles provided that the entity does not present the transaction together with revenue. EY Assurance services - comprising Audit, Financial Accounting Advisory Services (FAAS) and Forensic & Integrity Services - address risk and complexity while identifying opportunities to enhance trust in the capital markets. The nature and financial effects of each event or transaction shall be presented as a separate component of income from continuing operations or, alternatively, disclosed in notes to financial statements. Some respondents requested that the Board clarify certain aspects of the proposed amendments. 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). endstream endobj startxref 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. The issuance of Update 2014-09 on revenue from contracts with customers heightened the need for clarity on whether the guidance in Update 2014-09 applies to collaborative arrangements. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. BC13. 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. . Cybersecurity, strategy, risk, compliance and resilience, Value creation, preservation and recovery, Explore Transactions and corporate finance, Climate change and sustainability services, Strategy, transaction and transformation consulting, Real estate, hospitality and construction, How blockchain helped a gaming platform become a game changer, How to use IoT and data to transform the economics of a sport, M&A strategy helped a leading Nordic SaaS business grow. Buy and sell stamps from Poland. FSP Corp should therefore recognize the $1,000 received from Toy Company as a reduction of advertising costs in its income statement. Yq:W+pM|v{ BC18. The Board proposed to preclude an entity from presenting transactions that are not related to sales to third parties as revenue when the collaborative arrangement participant does not meet the scope of the guidance in Topic 606 (that is, the other party is not a customer in the context of the unit of account). 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. Those areas also were identified in the staffs research as areas for which the lack of guidance was resulting in diversity in practice. Added unit-of-account guidance to Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) limited to when an entity is assessing the scope of Topic 606. Asking the better questions that unlock new answers to the working world's most complex issues. However, we believe settlement gains and losses relating to preexisting relationships should generally be recognized in the income statement consistent with the guidance for business combinations in, For example, assume Company A is a defendant in litigation relating to a patent infringement claim brought by Company B. 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.". Overall, the feedback received during the workshops made it clear that if a nonrevenue model was developed, practice would desire more prescriptive guidance; however, there were strong opposing views on what that guidance should be. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. BC29. Are you still working? 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. The following summarizes the Boards considerations in reaching the conclusions in this Update. ASC 848-20 notes that it "provides optional expedients for contract modifications undertaken because of reference rate reform. The revenue guidance only applies if the counterparty to the contract is a customer. Alternatively, a creditor may report the change in present value attributable to the passage of time as interest income. 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. Refer to Appendix D of the publication for a summary of the updates. Present and potential investors, creditors, donors, and other users of financial information benefit from improvements in financial reporting, while the costs to implement new guidance are borne primarily by present investors. b. Whensome or all of the depreciation and amortization related to the manufacturing of products or the services providedby a reporting entity are excluded from the cost of sales line item, Amortization expense may result from lease transactions that are accounted for under. An entity-specific value (referred to as an entity-specific measurement in FASB Concepts Statement No. Example PPE 2-1 illustrates the recognition and measurement of an asset acquisition with a noncontrolling interest. BC6. An entity was permitted to present the payments based on an analogy to other Topics or, if there is no appropriate analogy, a reasonable, rational, and consistently applied accounting policy election. Welcome to Viewpoint, the new platform that replaces Inform. These provisions are generally grouped within SG&A. <> 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. for under the guidance in ASC 845 will now fall under the guidance in ASC 610-20 if they do not involve a customer. 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. 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. By continuing to browse this site, you consent to the use of cookies. Copyright 2023 Deloitte Development LLC. In December 2017, the FASB hosted two workshops for preparers and auditors to provide feedback on the operability of the staffs potential nonrevenue model. FSP Corp should recognize the consideration received as a reduction of the purchase price of the water bottles because it has not provided a distinct good or service to Water Company in exchange for this fee. [paragraph 606-10-15-3]. _W+ BC9. BC32. The reseller receives a direct reimbursement from the vendor (or a clearinghouse authorized by the vendor) based on the face amount of the incentive. 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. Toy Company has also committed to reimburse 50% of FSP Corps advertising costs related to toys purchased from Toy Company. It also clarifies and enhances interpretive guidance in several areas. How do you move long-term value creation from ambition to action. 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. For asset acquisitions in which some or all of the consideration transferred consists of noncash assets, liabilities incurred to the seller, or equity interests issued to the seller, reporting entities should first determine whether the transaction is within the scope of other US GAAP. ASC 850, Related Party Disclosures, is the primary accounting guidance on this topic, coupled with certain SEC guidance. 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. w]Gpg&@fk=GBhBb| PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. This was consistent with comments from respondents who stated that providing a year for implementation would provide entities that have extensive collaborative arrangements with adequate time to review their contracts. The classification of insurance proceeds in the income statement depends on the nature of the insurance claim. 2.2 Initial recognition (asset acquisitions), 2.4Allocating cost in an asset acquisition. Company A pays $9 million in cash and $100,000 in direct transaction costs. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. It is for your own use only - do not redistribute. Other respondents requested that the Board clarify whether transactions directly related to sales to third parties are within the scope of Topic 606. endstream endobj 1372 0 obj <>stream The Board also did not address the accounting for nonrevenue transactions between collaborative arrangement participants. Company A holds a 25% noncontrolling interest in a legal entity whose only asset is a patent. +1 816-802-5840. @Yr"PHE,) ru~2A}6Wl N yp ALXldMV.bbDTo !>K L/l[.n6mx7\i1AJ#5d;?m>*|i?> KA|#&rGPP?\j)1>UFo+Wx%mp=C|]z1h;~GPl Bgbv X*FE4m:u$6t3pu:xk6ux=P i3>dO[_ ek There is diversity in practice in how entities account for collaborative arrangements because of the limited recognition and measurement guidance in Topic 808. 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. 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). 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. 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. Company A has previously made an accounting policy election to analogize to the business combinations guidance in remeasuring previously held equity interests in an asset acquisition. That is, the consideration attributed to the acquired assets and assumed liabilities should only include the amounts related to those acquired assets and assumed liabilities in the exchange transaction. If the latter, some respondents disagreed because it would negatively affect performance measures that provide users with useful information. %PDF-1.5 % FSP Corp enters into a supplier agreement with Toy Company to purchase toys to sell through its website. Thereis no specific guidance within. Please seewww.pwc.com/structurefor further details. BC20. All rights reserved. It is for your own use only - do not redistribute. $F*NdOz=fv0c.5nU2.C8se6y]xw Company B, the seller, retains a 10% noncontrolling interest in the legal entity. Follow along as we demonstrate how to use the site. Select a section below and enter your search term, or to search all click This chapter describes the presentation and disclosure requirements and provides examples of common related party relationships and transactions. If Company A subsequently buys the intellectual property that is subject to the patent infringement from Company B, Company A would need to assess whether some of the consideration transferred should be accounted for separate from the asset acquisition transaction for the settlement of a preexisting relationship (i.e., ascribe some of the value to the effective settlement of the lawsuit). Because the amendments in this Update correlate with Topic 606, an entity must have adopted Topic 606 to apply the amendments in this Update. FSP Corp will contract directly with the advertising agencies and pay for the total cost of the campaign. Because determining the unit of account is critical to the accounting in a collaborative arrangement, the Board decided to provide unit-of-account guidance in Topic 808 and align that guidance with the guidance in Topic 606 for distinct goods or services. For example, the depreciation of a manufacturers factory and production equipment would likely be considered fixed overhead and capitalized as part of inventory costs, while the depreciation of corporate headquarters would typically be considered part of general and administrative expense. Q+ Alternatively, a creditor may report the change in present value attributable to the passage of time as interest income. Show All in One Page feature for viewing user-selected excerpts. Financial statements are "available to be issued" when they are prepared in accordance with US GAAP and the reporting entity has obtained all necessary approvals (e.g., from management . PwC. See more on AccountingLink Subscribe to AccountingLink updates, Do Not Sell or Share My Personal Information. Other respondents requested clarity on how to interpret. Some entities apply revenue guidance directly or by analogy to all or part of their arrangements, and others apply a different accounting method as an accounting policy. Because of the proposed models flexibility, certain participants raised concerns that the model would be difficult to apply and that it may not solve many of the challenges raised about recognition. /EdB+hh? Consider removing one of your current favorites in order to to add a new one. BC2. Consequently, overriding an entitys ability to consider the specific terms of its arrangements and the nature of its ordinary activities and precluding revenue recognition broadly for collaborative arrangements could have resulted in less relevant financial reporting because the accounting may not have reflected the nature and economics of the arrangement. Meet other stamp collectors interested in USSR stamps. In this case, classification of the amortization for the patent in costs of sales (or as an inventory cost that is eventually recorded as cost of sales) may be most consistent with the nature of the asset. The Board reached that conclusion because it would be confusing to users of financial statements if transactions in a collaborative arrangement were presented as revenue (see further discussion of presentation in paragraphs BC27BC30) but follow only certain aspects of Topic 606s requirements. Although the SEC requires a rollforward of the doubtful accounts and notes to be included in the filing as part of the Regulation S-X. xWMk@(H$PhjCn[=wVKil1zO3o0kpu=hl`G?gsi@0(zY}9"3L-3BgR)Obzq7 H!H\kAT$ e`ecpD'p \Me1%4Lq%,S!?71c(Qdf(s%>L BD`RV. Therefore, aligning the financial reporting requirements with Topic 606 is the most meaningful to users of financial statements. Meet other stamp collectors interested in USSR stamps. %PDF-1.7 By explicitly providing unit-of-account guidance in the context of assessing the scope of the revenue guidance and aligning the unit-of-account guidance with Topic 606, the Board also sought to eliminate potential future diversity in determining units of account when assessing whether a collaborative arrangement is partially within the scope of Topic 606 or other Topics. Company A acquires a 90% controlling interest in a legal entity whose only asset is a patent. 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. 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. It is for your own use only - do not redistribute. e3UY?O\S? Both of those characteristics are, therefore, highly dependent on the environment in which a company operates. 2.3 Initial measurement (asset acquisitions). Many reporting entities choose to disclose this information as one or more lines in thestatements of operations andof cash flows. BC36. If you have any questions pertaining to any of the cookies, please contact us us_viewpoint.support@pwc.com. The carrying value of Company As investment is $100,000 and its fair value is $500,000. 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. BC11. Unusual nature means that the event possesses a high degree of abnormality and is clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the company. 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 other words, the reporting entity should account for the sale the same way it accounts for sales to other customers. This content is copyright protected. Please refer to your advisors for specific advice. 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. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. By continuing to browse this site, you consent to the use of cookies. All rights reserved. Such footnote disclosure may be desirable for items that affect the comparability of income statements between periods. Pending Content System for filtering pending content display based on user profile. Various Printing options, including printer-friendly utility for viewing . <>/Metadata 2661 0 R/ViewerPreferences 2662 0 R>> Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. Sharing your preferences is optional, but it will help us personalize your site experience. Consider removing one of your current favorites in order to to add a new one. BC10. SG&A expenses include salaries of employees (excluding those related to product manufacturing or capitalized labor), depreciation (excluding those related to product manufacturing), bad debt expense, advertising expenses, rent expense (excluding those related to product manufacturing), and any other costs of selling product or administrating the business. BC28. Subsequentchanges in the recorded amount of contingent consideration should generally be recognized as an adjustment to the cost basis of the acquired assets, by analogy to. BC1. 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. The scope of ASC 946-605 is defined as "all . PwC. h-$LSB@o,M!/EvKXSB>k86;A. 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 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, ASU 2018-18Collaborative arrangements (Topic 808)Clarifying the interaction between Topic 808 and Topic 606, {{favoriteList.country}} {{favoriteList.content}}. A qualitative assessment will, in some cases, be conclusive in determining that the estimated cash flows of the entity are expected to significantly change as a result of the exchange. Please seewww.pwc.com/structurefor further details. See, Some reporting entities present gains or losses resulting from sales of businesses (that do not qualify as discontinued operations) within operating income in a two-step income statement, in accordance with. However, because the Board decided not to include recognition and measurement guidance for nonrevenue transactions in a collaborative arrangement (see further discussion in paragraphs BC31BC33), the decision to align the unit-of-account guidance to the guidance in Topic 606 for distinct goods or services is limited to the context of assessing the scope of the revenue guidance. Clarified 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 of the unit of account. 1434 0 obj <>stream You must log in{"id":"id-b3e87497-1bf3-4192-9d6b-f521d948ff90","action":"login-q3j74v"} to view this content and have a subscription package that includes this content. An entity may elect to apply the practical expedient for contract modifications that is permitted for entities using the modified retrospective transition method in Topic 606. Normal capacity refers to a range of production levels. endstream endobj 1374 0 obj <>stream You may withdraw your consent to cookies at any time once you have entered the website through a link in the privacy policy, which you can find at the bottom of each page on the website. POSTMASTER: Send address changes to Financial Accounting Series, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116. 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