Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. 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. At various stages in developing the amendments in this Update, the Board considered the projects scope. endstream endobj 1376 0 obj <>stream This content is copyright protected. 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. If the consideration transferred is in the form of nonfinancial or in substance nonfinancial assets within the scope of. of Professional Practice, KPMG US. FSP Corp enters into a supply contract with Water Company to purchase water bottles for $100,000. All rights reserved. Company A acquires a 90% controlling interest in a legal entity whose only asset is a patent. hb```yl9B A collaborative arrangement, as defined by the guidance in Topic 808, is a contractual arrangement under which two or more parties actively participate in a joint operating activity and are exposed to significant risks and rewards that depend on the activity's commercial success. Accordingly, if the consideration transferred is in the form of cash or other monetary assets, recognition and measurement of the acquired assets is based on the amount of cash or other monetary assets paid to the seller, in addition to direct transaction costs incurred. 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. Some respondents requested additional guidance on what to do when an entity concludes that the unit of account consists of promised goods or services that are partially within the scope of Topic 606 and are not. It also clarifies and enhances interpretive guidance in several areas. The objective of financial reporting is to provide information that is useful to present and potential investors, creditors, donors, and other capital market participants in making rational investment, credit, and similar resource allocation decisions. 78uZE~*x!o]|)Q/@;,%4yM``1mnigKNfs8YfU_)lBLf&hLU XpSTS E>AC |. This content is copyright protected. Company A should recognize and measure the acquired patent at a total cost of $10.1 million, consisting of (1) $9 million of cash consideration transferred, (2) $100,000 of direct transaction costs, and (3) $1 million fair value of noncontrolling interest. ASU 2018-18Collaborative arrangements (Topic 808)Clarifying the interaction between Topic 808 and Topic 606. 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). 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. Where depreciation and amortization is classified in the statement of operations depends on therelatedassets function. See Appendix G of the publication for a summary of the updates. 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. <> There are many different types of collaborative arrangements, and the accounting for any collaborative arrangement depends on the specific negotiated terms. 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 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. Applicability However, because inventory is an output of an entity's ordinary activities, we believe that the exchange of inventory for noncash consideration with a counterparty that is not a customer will continue to be accounted for under . See paragraphs BC31BC33 for the Boards basis for that decision. 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. Contingent consideration recognized should be included in the initial cost of the assets acquired. 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. h1_4'n4PK7C[u9!+m{e:v!|xmaDqI"JFD+HsC%Vc1@pf@p!! An entity should recognize the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings of the later of the earliest annual period presented and the annual period that includes the date of the entitys initial application of Topic 606. BC34. Add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606. 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. Therefore, the Board decided not to provide recognition and measurement guidance for nonrevenue transactions in a collaborative arrangement. USSR stamp catalogue. PK ;bVoa, mimetypeapplication/epub+zipPK ;bV2[ META-INF/container.xmlM OAX LE7CJHHH o/t/;y 9:B- . Many reporting entities choose to disclose this information as one or more lines in thestatements of operations andof cash flows. 7, Using Cash Flow Information and Present Value in Accounting Measurements) is different from a fair value measurement. ASC 850, Related Party Disclosures, is the primary accounting guidance on this topic, coupled with certain SEC guidance. On the date of the acquisition, Company A should allocate the transaction price of $100 million between the acquired group of assets and the TSA with Company B on a relative fair value basis. Example PPE 2-3 illustrates the allocation of consideration transferred on a relative fair value basis between an asset acquisition and a transition service arrangement entered into on the acquisition date. The fair value of the group of assets is $95 million. @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 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. Follow along as we demonstrate how to use the site. Copyright 2023 Deloitte Development LLC. Company A pays $9 million in cash and $100,000 in direct transaction costs. Toy Company has also committed to reimburse 50% of FSP Corps advertising costs related to toys purchased from Toy Company. Accordingly, the amendments in this Update do not result in any changes to the accounting for those transactions. We use cookies to personalize content and to provide you with an improved user experience. The fair value of neither the asset(s) received nor the asset(s) relinquished is determinable within reasonable limits. It is for your own use only - do not redistribute. US pandemic response and relief funding proactively mitigating fraud, waste and abuse, The COO Imperative: How human emotions can unlock supply chain success, 2023 Global economic outlook: Transforming uncertainty into opportunity, Select your location Close country language switcher. Because the amendments in this Update correlate with Topic 606, an entity must have adopted Topic 606 to apply the amendments in this Update. The agenda request asked that the Board consider providing recognition and measurement guidance for nonrevenue transactions between collaborative arrangement participants. How should Company A account for the asset acquisition, including the previously held equity interest (PHEI)? Regina Croucher. ASC 825 comprises two Subtopics, below is an overview of each Subtopic. The Board rejected including within the scope of this project collaborative-type arrangements structured in a separate legal entity. Select a section below and enter your search term, or to search all click Read our cookie policy located at the bottom of our site for more information. For example, a reporting entity that provides security monitoring services may have an acquired customer-relationship intangible asset. Not all depreciation of manufacturing productive assets can be absorbed into inventory. 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. Those areas also were identified in the staffs research as areas for which the lack of guidance was resulting in diversity in practice. For transactions involving nonmonetary consideration within the scope of Topic 845, an acquirer must first determine if any of the conditions in paragraph 845-10-30-3 apply. Assuming the water bottles are initially held in inventory by FSP Corp prior to their eventual sale, the cost of the inventory would be reduced by $10,000 on a per unit basis such that cost of sales will be reduced when recognized in FSP Corps income statement. The edits focused on changes resulting from the proposed amendments and were not intended to provide additional guidance on the application of Topic 606 or Topic 808. 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. Follow the guidance for business combinations (. The amendments in this Update affect all entities that have collaborative arrangements. 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. 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. Advertising costs are generally presented as part of selling, general, and administrative (SG&A) expenses in a reporting entitys income statement. 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. 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. endobj The SG&A line item frequently includes the sum of all direct and indirect selling expenses, as well as all general and administrative expenses of the reporting entity. On the other hand, a reporting entity may have a patent intangible asset that is used in the production of its products. The amendments in this Update should be applied retrospectively to the date of initial application of Topic 606. @AH320dlX@ s3@ 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. Download now. Company A acquires a group of assets that does not constitute a business for $100 million from Company B. 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. 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. The Board does not anticipate that entities will incur significant costs as a result of the amendments in this Update. If not included in cost of sales, the reporting entity should follow the guidance in. EY helps clients create long-term value for all stakeholders. A material event or transaction that an entity considers to be of an unusual nature or of a type that indicates infrequency of occurrence or both shall be reported as a separate component of income from continuing operations. BC35. BC31. FSP Corp will contract directly with the advertising agencies and pay for the total cost of the campaign. 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. 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 Board decided not to include recognition and measurement guidance for nonrevenue transactions in the amendments. There is no guidance outside of a business combination for the settlement of preexisting relationships. endstream endobj 1372 0 obj <>stream 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. 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. Company A estimates the fair value of the services to be provided under the TSA to be $5 million. 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. It is for your own use only - do not redistribute. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. 4 0 obj See paragraph BC12BC16 for the Boards basis for the projects scope. 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