%%EOF That model intentionally left substantial room for judgment to allow for different accounting outcomes for a wide range of arrangements that had significant differences in economics. FSP Corp should therefore recognize the $1,000 received from Toy Company as a reduction of advertising costs in its income statement. Total depreciation and amortization of long-lived assets is required to be disclosed in a reporting entitys financial statements. endstream endobj startxref 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. 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. 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 . Are you still working? The EITF did not provide specific recognition and measurement guidance because of the difficulty in developing a single accounting model that could be applied to the wide range of different collaborative arrangements. 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.". Respondents agreed that no additional disclosures are necessary. 1434 0 obj <>stream How should the $1,000 advertising allowance be recorded by FSP Corp? This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. BC11. The amendments improve comparability by allowing the presentation of the units of account in collaborative arrangements that are within the scope of Topic 606 together with revenue accounted for under Topic 606. In other words, the reporting entity should account for the sale the same way it accounts for sales to other customers. Asset acquisitions may includecontingent consideration, which represents an obligation of the acquirer to transfer additional assets or equity interests to the seller if future events occur or conditions are met. How do you move long-term value creation from ambition to action. FSP Corp is required to provide Toy Company with the associated proof of payment for advertisements that feature Toy Companys products. 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 SEC staff has acknowledged that, in some cases, a reporting entity may be able to support more than one conclusion based on the existing accounting literature. An entity-specific value (referred to as an entity-specific measurement in FASB Concepts Statement No. The Board also acknowledged the need to clarify the items in the agenda request on a timely basis given the effective date of Topic 606. All rights reserved. Any consideration relating to separate transactions would be attributed to those transactions and accounted for separately. b. Such footnote disclosure may be desirable for items that affect the comparability of income statements between periods. Discover how EY insights and services are helping to reframe the future of your industry. On the basis of that information, the Board decided that the nature of the joint operating activity and the shared risks and rewards should not preclude revenue recognition according to Topic 606 in those instances. Company A determines that the transaction should be accounted for as an asset acquisition, as the legal entity acquired does not constitute a business. It lists three requirements for collaborative arrangements: They involve at least two parties (or participants). Entities involved in collaborative arrangements observed that, in some situations, a collaborative arrangement participant contracts to obtain goods or services that are the output of an entitys ordinary activities. 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. 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. Buy and sell stamps from USSR. 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. See paragraphs BC22BC26 for the Boards basis for that decision. The scope of ASC 946-605 is defined as "all . The Board also did not address the accounting for nonrevenue transactions between collaborative arrangement participants. The Board received 27 comment letters in response to the proposed Update. 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. c.The transaction lacks commercial substance (see the following paragraph). These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. 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. EY is a global leader in assurance, consulting, strategy and transactions, and tax services. The Board rejected including within the scope of this project collaborative-type arrangements structured in a separate legal entity. Follow along as we demonstrate how to use the site. These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. 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. BC37. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. Others view each transaction between collaborative arrangement participants, such as an upfront payment or a cost-reimbursement payment, as a separate unit of account. If there is other guidance that is applicable to payments in collaborative arrangements, reporting entities should follow that guidance (e.g., guidance on customer payments in, Reporting entities are required to disclose the following information about collaborative agreements in the scope of. +1 816-802-5840. It is for your own use only - do not redistribute. The Board concluded that certain transactions between collaborative arrangement participants that are unrelated to sales to third parties (that is, related to developing an asset rather than selling a completed product) could result in revenue under Topic 606 consistent with paragraph BC55 of Update 2014-09. The amendments in this Update make targeted improvements to generally accepted accounting principles (GAAP) for collaborative arrangements as follows: The amendments in this Update provide guidance on whether certain transactions between collaborative arrangement participants should be accounted for with revenue under Topic 606. Regina Croucher. Also, the consideration is not a reimbursement of specific, incremental, and identifiable costs incurred by FSP Corp to sell the vendors products. The change in present value from one reporting period to the next may result not only from the passage of time but also from changes in estimates of the timing or amount of expected future cash flows. All rights reserved. How should Company A account for the services to be received under the TSA? . An entity should disclose its election. 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. +1 212-909-5455 Our comprehensive handbook provides detailed guidance and interpretations of ASC 805, with illustrative examples and Q&As. BC1. The Board acknowledged that entities currently use judgment to determine whether a transaction should be presented in the broader revenue category and that its intent was not to change that practice. 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. All rights reserved. Because the amendments in this Update clarify the interaction between the scope of Topics 808 and 606, the Board also decided to require consistent presentation and prevent transactions that are outside the scope of Topic 606 from being presented as revenue. Read our cookie policy located at the bottom of our site for more information. endstream endobj startxref Sharing your preferences is optional, but it will help us personalize your site experience. In addition, the Board decided to allow the same practical expedients in paragraph 606-10-65-1(h) that are permitted for the modified retrospective transition method in paragraph 606-10-65-1(d)(2). % All rights reserved. Not all depreciation of manufacturing productive assets can be absorbed into inventory. BC6. 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. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. Such arrangements should be accounted for separate from the asset acquisition. The Board did not intend to establish an exception to the revenue requirements in Topic 606 for transactions in collaborative arrangements. It is for your own use only - do not redistribute. ASC 845 Nonmonetary Transactions 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." Disclosure shall be made in the financial statements of the total research and development costs charged to expense in each period for which an income statement is presented. Clarify 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 ofa unit of account. You can set the default content filter to expand search across territories. ASC 946-605 contains its own scope that is separate from the other Subtopics of ASC 946. 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. Foreign currency transaction gains/losses result from a change in exchange rates between the functional currency and the currency in which a foreign currency transaction is denominated. Disclosed in a reporting entitys financial statements establish an exception to the proposed Update transactions and accounted for separately reporting... Be attributed to those transactions and accounted for separate from the other Subtopics ASC! < > stream how should the $ 1,000 received from Toy Company the... Purposes only, and should not be used as a substitute for consultation professional! Expand search across territories feature Toy Companys products to expand search across.. 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