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Many respondents requested amendments that would have illustrated how the conclusions were reached. (2022).". " .S01E04. . 392 0 obj <> endobj BC8. 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. How should FSP Corp account for the $10,000 payment from Water Company? 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. endobj 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. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. Copyright 2018 by Financial Accounting Foundation. Reporting entities may have flexibility as to how they present bad debt expense (i.e., expense associated with changes in the provision for receivables). Terms of reimbursement to the reseller for the vendor's sales incentive offered to the consumer must not be influenced by or negotiated in conjunction with any other incentive arrangements between the vendor and the reseller but, rather, may be determined only by the terms of the incentive offered to consumers. See. EY | Assurance | Consulting | Strategy and Transactions | Tax. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. 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. Before the issuance of the amendments in this Update, an entity was not precluded from presenting payments received in a collaborative arrangement that are not within the scope of other Topics as revenue. 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. You can set the default content filter to expand search across territories. Consider removing one of your current favorites in order to to add a new one. 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. Sharing your preferences is optional, but it will help us personalize your site experience. Infrequent means that the event should not be reasonably expected to recur in the foreseeable future. In other words, the reporting entity should account for the sale the same way it accounts for sales to other customers. Such arrangements should be accounted for separate from the asset acquisition. All rights reserved. On the Radar: Foreign currency accounting. 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. Select a section below and enter your search term, or to search all click Toy Company has also committed to reimburse 50% of FSP Corps advertising costs related to toys purchased from Toy Company. Example PPE 2-2 illustrates the recognition and measurement of an asset acquisition when the acquirer previously held a noncontrolling equity interest. 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. Some respondents requested that the Board provide additional guidance on how to determine whether a collaborative arrangement participant is a customer. Others view each transaction between collaborative arrangement participants, such as an upfront payment or a cost-reimbursement payment, as a separate unit of account. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. There is diversity in practice in how entities account for collaborative arrangements because of the limited recognition and measurement guidance in Topic 808. BC33. The Board considered that feedback during its redeliberations of the issues addressed by the proposed Update, as described in the discussion below. Buy and sell stamps from USSR. 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. In determining when transactions between collaborative arrangement participants under Topic 808 are within the scope of the revenue guidance in Topic 606, the Board did not intend to develop new or different requirements from the requirements of Topic 606. 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. This edition includes ASU 2021-08 (contract assets and contract liabilities from contracts with customers) and application issues related to SPACs. 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 . In making that decision, the Board acknowledged the different accounting models and outcomes between transactions involving a collaborative arrangement as defined in Topic 808 and those involving a separate legal entity with similar characteristics. FSP Corp would likely conclude in this fact pattern that the reimbursement does not relate to specific, incremental, and identifiable costs incurred in selling Toy Companys products. Yq:W+pM|v{ On April 26, 2018, the FASB issued a proposed Accounting Standards Update. BC19. The classification of insurance proceeds in the income statement depends on the nature of the insurance claim. FSP Corp is required to provide Toy Company with the associated proof of payment for advertisements that feature Toy Companys products. FSP Corp should therefore recognize the $1,000 received from Toy Company as a reduction of advertising costs in its income statement. Example FSP 3-1, Example FSP 3-2, and Example FSP 3-3 illustrate the accounting for consideration received from a vendor. Consider removing one of your current favorites in order to to add a new one. Read our cookie policy located at the bottom of our site for more information. If the consideration transferred is in the form of liabilities incurred or equity interests issued to the seller, these amounts should generally be recognized on the acquisition date. The Board decided to address unit-of-account guidance in the context of the scope of the revenue guidance within the amendments in this Update. H\@=OQEn$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 For all other entities, consistent with the Private Company Decision-Making Framework, the Board decided that the amendments in this Update should be effective for fiscal years beginning after December 15, 2020, and for interim periods within fiscal years beginning after December 15, 2021. Those accounting differences result in diversity in practice on how entities account for transactions on the basis of their view of the economics of the collaborative arrangement. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements. The agreement also includes payment of an advertising allowance of $1,000 to FSP Corp by Toy Company. ASC 705 Cost of Sales and Services. of Professional Practice, KPMG US. BC35. 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. Although the lack of guidance for collaborative arrangements has resulted in diversity in practice for more than a decade, the issuance ofAccounting Standards Update No. In less common situations, a payment may be unrelated to the customer-vendor relationship (e.g., the resolution of a separate commercial dispute) and subject to other guidance, such as the guidance for contingent gains (see, If payments are received in exchange for a distinct good or service that the reporting entity transfers to the vendor, the reporting entity should recognize the payment as revenue, assuming the goods or services are an output of the reporting entitys ordinary activities. EY is a global leader in assurance, consulting, strategy and transactions, and tax services. Follow along as we demonstrate how to use the site. Therefore, current practice for those transactions is unchanged. 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 . The aggregate amount of goodwill impairment losses should be presented as a separate line item on the income statement within continuing operations unless a goodwill impairment is associated with a discontinued operation. The Board noted that the amendments may, in certain situations, reduce cost by clarifying guidance that various entities and accounting firms indicated is unclear. The Board received 27 comment letters in response to the proposed Update. endstream endobj 1374 0 obj <>stream These provisions are generally grouped within SG&A. +1 816-802-5840. 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. Many reporting entities choose to disclose this information as one or more lines in thestatements of operations andof cash flows. 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. For inquiries and feedback please contact ourAccountingLink mailbox. 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. hb```[@(q$(^uJ=-m In general, the disclosure shall encompass important judgments as to appropriateness of principles relating to recognition of revenue and allocation of asset costs to current and future periods; in particular, it shall encompass those accounting principles and methods that involve any of the following: It has also been updated to further enhance and clarify our interpretive guidance in several areas. If not included in cost of sales, the reporting entity should follow the guidance in. 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. 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. For more information about our organization, please visit ey.com. For additional copies of this Accounting Standards Update and information on applicable prices and discount rates contact: FINANCIAL ACCOUNTING SERIES (ISSN 0885-9051) is published monthly with the exception of May and October by the Financial Accounting Foundation, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116. The scope of ASC 946-605 is defined as "all . We bring together extraordinary people, like you, to build a better working world. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. It is for your own use only - do not redistribute. The revenue guidance only applies if the counterparty to the contract is a customer. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. Follow the asset acquisition cost accumulation model and include the acquirers carrying amount of the PHEI, along with the fair value of any consideration paid and direct transaction costs incurred, in determining the cost to be allocated to the assets acquired. BC32. However, the Board decided that aligning those models would require a broader, longer term effort that would extend beyond the issues raised in the agenda request. 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