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. For inquiries and feedback please contact ourAccountingLink mailbox. FSP Corp enters into a supply contract with Water Company to purchase water bottles for $100,000. The guidance in Topic 808 originated from EITF Issue No. BC12. Review ourcookie policyfor more information. 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. 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). 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. Pending Content System for filtering pending content display based on user profile. This content is copyright protected. Consideration transferred should be allocated between the asset acquisition transaction and any separate transactions on a relative fair value basis. . 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. Where depreciation and amortization is classified in the statement of operations depends on therelatedassets function. Such arrangements should be accounted for separate from the asset acquisition. Partner, Dept. Many reporting entities choose to disclose this information as one or more lines in thestatements of operations andof cash flows. Other respondents requested that the Board clarify whether transactions directly related to sales to third parties are within the scope of Topic 606. 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. The following summarizes the Boards considerations in reaching the conclusions in this Update. Download now. Outreach indicated that, under current GAAP, many entities analogize to the accounting for revenue under Topic 605 or Topic 606 when accounting for transactions between collaborative arrangement participants. 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. 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. BC33. 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. Gains or losses of a similar nature that are not individually material shall be aggregated. Company A would then recognize and measure the acquired patent at a total cost of $2 million, consisting of (1) $1.5 million of cash consideration transferred and (2) the $500,000 fair value of PHEI on the acquisition date. AB"& a{YH( k!9h#ADX4JJ"XTr Mt0Dz iKZ PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Impairments of long-lived assets may be included within operating income based on the function of the associated asset or presented separately in the income statement. Therefore, the Board decided not to provide recognition and measurement guidance for nonrevenue transactions in a collaborative arrangement. The FASB is issuing this Update to clarify the interaction between Topic 808, Collaborative Arrangements, and Topic 606, Revenue from Contracts with Customers. See more on AccountingLink Subscribe to AccountingLink updates, Do Not Sell or Share My Personal Information. Many respondents requested amendments that would have illustrated how the conclusions were reached. 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. The Boards assessment of the costs and benefits of issuing new guidance is unavoidably more qualitative than quantitative because there is no method to objectively measure the costs to implement new guidance or to quantify the benefit of improved information in financial statements. BC15. 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. When an asset acquisition involves nonmonetary consideration. Several respondents questioned the Boards intent for precluding revenue presentation for transactions outside the scope of Topic 606. Individual Board members gave greater weight to some factors than to others. 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. b. We bring together extraordinary people, like you, to build a better working world. BC19. Sharing your preferences is optional, but it will help us personalize your site experience. BC26. H\n0E It includes reasons for accepting certain approaches and rejecting others. Those respondents requested that the Board clarify whether it intended to preclude the aggregation of other sources of revenue from collaborative arrangements with revenue that is within the scope of Topic 606 or to more generally preclude revenue presentation. Regina Croucher. ASC 850, Related Party Disclosures, is the primary accounting guidance on this topic, coupled with certain SEC guidance. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. The guidance also states: A counterparty to the contract would not be a customer if, for example, the counterparty has contracted with the entity to participate in an activity or process in which the parties to the contract share in the risks and benefits that result from the activity or process (such as developing an asset in a collaboration arrangement) rather than to obtain the output of the entitys ordinary activities. In addition, the amendments in this Update provide more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. Advertising costs are generally presented as part of selling, general, and administrative (SG&A) expenses in a reporting entitys income statement. Company A holds a 25% noncontrolling interest in a legal entity whose only asset is a patent. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. Welcome to Viewpoint, the new platform that replaces Inform. In making this determination, we believe the acquirer in an asset acquisition should consider (1) the reasons for the transaction, (2) who initiated the transaction, and (3) the timing of the transaction, by analogy to the guidance for business combinations in. 2019 - 2023 PwC. 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. 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. You can set the default content filter to expand search across territories. Most respondents requested that the Board permit early adoption of the amendments, and the Board agreed. Consider removing one of your current favorites in order to to add a new one. The FASB staff explored a potential nonrevenue model that was flexible and would have allowed an entity to reflect the underlying economics of the collaborative arrangement. Those areas also were identified in the staffs research as areas for which the lack of guidance was resulting in diversity in practice. hbbd```b``5 fO `vdUZR0Y" IF Xl;10120md`w Company A has determined that the fair value of the noncontrolling interest is $1 million. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. The Board decided to include guidance in Topic 808 to address the issue raised in the agenda request about the apparent inconsistency between Topic 606s scope and the discussion included in the basis for conclusions of Update 2014-09. 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 other scenarios, the end customer may interact directly with the vendor to claim sales incentives for products purchased from a reseller (e.g., mail-in rebate). 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. 845-10-05-12 The Exchanges of a Nonfinancial Asset for a Noncontrolling Ownership Interest Subsections provide guidance for certain nonmonetary exchanges in which one entity transfers a nonfinancial asset (or assets) to a second entity in exchange for a noncontrolling ownership interest in that second entity. HMo0. The Board rejected including within the scope of this project collaborative-type arrangements structured in a separate legal entity. The scope of ASC 946-605 is defined as "all . BC13. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. 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. b. {"pageProps":{"_nextI18Next":{"initialI18nStore":{"es":{"common":{"app_download_open":"Botn de descarga o apertura de la app","average_rating_stars":"Calificacin . Clarified that, in a transaction that is not directly related to sales to third parties, presenting the transaction as revenue would be precluded if the collaborative arrangement participant is not a customer. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. h1_4'n4PK7C[u9!+m{e:v!|xmaDqI"JFD+HsC%Vc1@pf@p!! BC24. All rights reserved. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Some reporting entities choose to report all depreciation and amortization directly charged to earnings as a separate line item in the statement of operations rather than include it in the related line items by function (e.g., cost of sales, selling and marketing, general and administrative). It also clarifies and enhances interpretive guidance in several areas. PwC. Therefore, an entity may still analogize to those principles provided that the entity does not present the transaction together with revenue. The Board decided not to include recognition and measurement guidance for nonrevenue transactions in the amendments. 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. An exchange with another entity (reciprocal transfer) that involves principally nonmonetary assets or liabilities. BC23. 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. 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). Copyright 2018 by Financial Accounting Foundation. 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. 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. How should the advertising costs reimbursed by Toy Company be recorded by FSP Corp? 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. If not included in cost of sales, the reporting entity should follow the guidance in. 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. It has also been updated to further enhance and clarify our interpretive guidance in several areas. This content is copyright protected. remember settings), Performance cookies to measure the website's performance and improve your experience, Marketing/Targeting cookies which are set by third parties with whom we execute marketing campaigns and allow us to provide you with content relevant to you. ASC 946-605 contains its own scope that is separate from the other Subtopics of ASC 946. Total depreciation and amortization of long-lived assets is required to be disclosed in a reporting entitys financial statements. _lEVkJVJc5icEs A4 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 . The guidance in Topic 606 specifically excludes parts of collaborative arrangements from the scope of the revenue guidance. Example PPE 2-1 illustrates the recognition and measurement of an asset acquisition with a noncontrolling interest. 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. FSP Corp enters into a supplier agreement with Toy Company to purchase toys to sell through its website. 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. ,T1TgUj\zdIgU]d4{~>Aaj&f*ymE{!.3tW`Fb|xACCmPKLKtk 8Hr?VB;xws4A(["I@lZ!=N[C%;p[=ty"0|"8YCTan|)syk&v2Y.gNg^1]8? Select a section below and enter your search term, or to search all click Revenue from Contracts with Customers (Topic 606), Company name must be at least two characters long. Parts of collaborative arrangements from the other Subtopics of asc 946-605 contains its own scope that separate! To include recognition and measurement guidance for nonrevenue transactions in the statement of operations andof cash flows areas! Arrangements asc 845 ey frd be allocated between the asset acquisition the guidance in Topic 808 originated from Issue... 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