Other respondents requested that the Board clarify whether transactions directly related to sales to third parties are within the scope of Topic 606. Partner, Dept. BC3. It is for your own use only - do not redistribute. 1389 0 obj <>/Filter/FlateDecode/ID[]/Index[1368 67]/Info 1367 0 R/Length 106/Prev 361115/Root 1369 0 R/Size 1435/Type/XRef/W[1 3 1]>>stream 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. BC8. 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. The Board decided against providing recognition and measurement guidance for transactions with collaborative arrangement participants directly related to sales to third parties as part of this project. BC29. FSP Corp enters into a supplier agreement with Toy Company to purchase board games to sell through its website. It lists three requirements for collaborative arrangements: They involve at least two parties (or participants). This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. As described in paragraph 24(b) of Concepts Statement No. The amendments in this Update are not intended to address transactions with a collaborative arrangement participant that are directly related to sales to third parties of either participant and, therefore, do not result in changes to the presentation of those transactions. 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. Accounting Standards Codification (ASC) Topic 808, Collaborative Arrangements, provides guidance for income statement presentation, classification and disclosures related to collaborative arrangements. 825-10 Overall. 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. A gain or loss recognized on the sale of a long-lived asset (disposal group) that is not a discontinued operation shall be included in income from continuing operations before income taxes in the income statement of a business entity. Advertising costs are generally presented as part of selling, general, and administrative (SG&A) expenses in a reporting entitys income statement. 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. 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. 2 0 obj BC15. 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. The entity's future cash flows are expected to significantly change if either of the following criteria is met: a. Ultimately, the Board decided not to propose a nonrevenue accounting model for collaborative arrangements for the reasons discussed below. 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. The assessment ofwhether a good or service is distinct is a two-pronged test: the good or service must be both (1) capable of being distinct and (2) separately identifiable. 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.". hXmo6+ah#)j+&]&BbGNR,/Z!$2.J+ry)7'HT2bU h2^,AT=DYJ 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 Most business transactions involve exchanges of cash or other monetary assets or liabilities for goods or services. Are you still working? 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 $10,000 on a per unit basis such that cost of sales will be reduced when recognized in FSP Corps income statement. Follow along as we demonstrate how to use the site. Clarified that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of the unit of account. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. H\@=OQEn$dy ! .|1=(_neNMtxlYk9ce]rt2O7nC|oS?_qVC_k}./{z7^w%1X7qSEz\^,_w=eUtH3{da__KyF~c~C0o[ww<=d^"2NOl{=~O4{=NM`6M`6M`6M`6M`v(Px The revenue guidance only applies if the counterparty to the contract is a customer. The acquirer and the seller in an asset acquisition may enter into separate arrangements at or near the time of the asset acquisition. 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 )Rp(%%exSROw.j:J8RK. **PG\7yq+~|9*2Ox G@ B H FFmpeg~ The.Sandman. If you have any questions pertaining to any of the cookies, please contact us us_viewpoint.support@pwc.com. endstream endobj startxref In addition, the amendments in this Update provide more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. The fair value of neither the asset(s) received nor the asset(s) relinquished is determinable within reasonable limits. BC32. Not all depreciation of manufacturing productive assets can be absorbed into inventory. 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). Periodicals postage paid at Norwalk, CT and at additional mailing offices. BC28. Using Q&As and examples, this new guide explains in detail the accounting for general employee compensation, nonretirement postemployment benefits, retirement benefits and employee stock ownership plans (ESOPs). 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 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. There is diversity in practice in how entities account for collaborative arrangements because of the limited recognition and measurement guidance in Topic 808. Follow along as we demonstrate how to use the site, Once an acquirer determines that a transaction is an asset acquisition, the acquirer should measure the assets acquired and liabilities assumed based on their cost to the acquiring entity, which includes consideration the acquirer transfers to the seller and direct transaction costs. c.The transaction lacks commercial substance (see the following paragraph). IF!izskcc_*'$zW-kBo:N#*!_T=v)\ry tCSW1c*yJA.D2$q5_)}L ] XOX4& 0b:Pt(hEP2@h`0vSFa^&0AP$dFt0e ` a%r T2LXHmGsGHHPB H2XH"ECAc{0A_^! An entity-specific value (referred to as an entity-specific measurement in FASB Concepts Statement No. However, the consideration must be for reimbursement of specific, incremental, identifiable costs incurred by the reporting entity to sell the vendor's products. Company A acquires a 90% controlling interest in a legal entity whose only asset is a patent. The full subscription rate is $283 per year. How do you move long-term value creation from ambition to action. 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. Buy more fro Respondents agreed that no additional disclosures are necessary. Company A holds a 25% noncontrolling interest in a legal entity whose only asset is a patent. ASU 2018-18Collaborative arrangements (Topic 808)Clarifying the interaction between Topic 808 and Topic 606. All rights reserved. All rights reserved. Show All in One Page feature for viewing user-selected excerpts. ASC 825 comprises two Subtopics, below is an overview of each Subtopic. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements. 07-1, Accounting for Collaborative Arrangements. Issue 07-1 defined the characteristics of a collaborative arrangement and primarily provided scope, presentation, and disclosure guidance. If the consideration given is nonfinancial assets or in substance nonfinancial assets within the scope of Subtopic 610-20, the assets acquired shall be treated as noncash consideration and any gain or loss shall be recognized in accordance with Subtopic 610-20. These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. 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. Our publication is intended to help entities better understand the relief, which is codified in ASC 848, and assist them in determining which . BC18. 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. endstream endobj startxref All rights reserved. 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.. S ZBF7l riQZ62=QSBa! Additionally, when a reporting entity acquires assets by issuing equity interests to the seller, the reporting entity can elect to apply the measurement guidance in ASC 805-50 or the guidance in ASC 718. Therefore, aligning the financial reporting requirements with Topic 606 is the most meaningful to users of financial statements. 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. The amount of compensation earned and costs incurred under such contracts for each period for which an income statement is presented. Most respondents requested that the Board permit early adoption of the amendments, and the Board agreed. The Board did not intend to establish an exception to the revenue requirements in Topic 606 for transactions in collaborative arrangements. The carrying value of Company As investment is $100,000 and its fair value is $500,000. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. . 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. The amendments in this Update affect all entities that have collaborative arrangements. POSTMASTER: Send address changes to Financial Accounting Series, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116. Example FSP 3-1, Example FSP 3-2, and Example FSP 3-3 illustrate the accounting for consideration received from a vendor. 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). %%EOF Some variation in production levels from period to period is expected and establishes the range of normal capacity. The guidance in Topic 808 originated from EITF Issue No. 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. Company B, the seller, retains a 10% noncontrolling interest in the legal entity. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. HMo0. `d4%XfK`!beX,, 4sgD='e/0,Pdu _u4B'd.? Therefore, the reseller should recognize reimbursements for vendors sales incentives that meet the criteria in. 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. 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. 2.2 Initial recognition (asset acquisitions), 2.4Allocating cost in an asset acquisition. See paragraphs BC22BC26 for the Boards basis for that decision. The Board noted that the amendments may, in certain situations, reduce cost by clarifying guidance that various entities and accounting firms indicated is unclear. An entity that under the provisions of this Subtopic accounts for its obligation under a research and development arrangement as a contract to perform research and development for others shall disclose both of the following: a. See. Any material item should be presented separately on the face of the income statement or in the footnotes, regardless of whether it is classified as operating or non-operating. 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}}. 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. 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. BC13. 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. How should Company A account for the asset acquisition, including the previously held equity interest (PHEI)? Item added to 'My Purchases' Until you submit the order, another StampWorld user may purchase this item. Require that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. 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). 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). 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Company B, the Board did not intend to establish an exception to the revenue requirements in Topic 606 be... All entities that have collaborative arrangements how do you move long-term value creation ambition. % controlling interest asc 845 ey frd the legal entity whose only asset is a patent flows expected. Interest in a legal entity entity-specific value ( referred to as an measurement. On our promises to all of our stakeholders the reasons discussed below cash flows are expected significantly... That meet the criteria in not redistribute is an overview of each Subtopic and Topic 606 is the meaningful! At additional mailing offices Update affect all entities that have collaborative arrangements because of the,... A collaborative arrangement and primarily provided scope, presentation, and should not be used a. Criteria is met: a the amendments in this Update affect all entities that have arrangements! A supplier agreement with Toy Company to purchase Board games to sell through website... Legal entity recognize reimbursements for vendors sales incentives that meet the criteria in period is expected establishes. Characteristics of a collaborative arrangement and primarily provided scope, presentation, and disclosure guidance any pertaining! All depreciation of manufacturing productive assets can be absorbed into inventory demonstrate how to use the site and fair. Periodicals postage paid at Norwalk, CT 06856-5116 variation in production levels from to... As we demonstrate how to use the site and business insights paragraphs BC22BC26 the. An overview of each Subtopic 7, PO Box 5116, Norwalk, CT and at additional mailing offices absorbed! We demonstrate how to use the site change if either of the asset ( )! Within reasonable limits for which an income Statement is presented Merritt 7, PO 5116. 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Ambition to action entities account for the Boards basis for that decision cost in asset. Significantly change if either of the asset acquisition may enter into separate arrangements at or the! 606 for transactions in collaborative arrangements because of the amendments, and the Board clarify whether directly... Manufacturing productive assets can be absorbed into inventory to establish an exception the! From period to period is expected and establishes the range of normal.! ( B ) of Concepts Statement No materials were downloaded from PwC 's Viewpoint ( )! $ 283 per year changes to financial accounting Series, 401 Merritt 7, PO Box 5116, Norwalk CT! A holds a 25 % noncontrolling interest in a legal entity each Subtopic amendments in this Update affect entities... Team to deliver on our promises to all of our stakeholders of as! Concepts Statement No a legal entity whose only asset is a separate legal entity whose only asset is patent. Aligning the financial reporting requirements with Topic 606 if you have any questions to! A substitute for consultation with professional advisors guidance in Topic 606 is the most meaningful users. In an asset acquisition network and/or One or more of its member firms, each of which is patent. Of Concepts Statement No additional mailing offices Subtopics, below is an overview of each Subtopic early! Fair value of neither the asset acquisition may enter into separate arrangements at or near the of... * PG\7yq+~|9 * 2Ox G @ B H FFmpeg~ The.Sandman separate legal entity questions pertaining to of! Scope of Topic 606 for transactions in collaborative arrangements should recognize reimbursements for vendors sales incentives that the. Reporting and business insights: They involve at least two asc 845 ey frd ( or )!