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. Company A pays $9 million in cash and $100,000 in direct transaction costs. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Insight. Those areas also were identified in the staffs research as areas for which the lack of guidance was resulting in diversity in practice. BC31. The cost of the acquisition is then allocated to the assets acquired based on their relative fair values (see. If the consideration transferred is in the form of nonfinancial or in substance nonfinancial assets within the scope of. FSP Corp enters into a supplier agreement with Toy Company to purchase toys to sell through its website. 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. 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. ASC 705 Cost of Sales and Services. BC14. Periodicals postage paid at Norwalk, CT and at additional mailing offices. @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 Sharing your preferences is optional, but it will help us personalize your site experience. endstream endobj startxref %PDF-1.7 Others view each transaction between collaborative arrangement participants, such as an upfront payment or a cost-reimbursement payment, as a separate unit of account. H\n0E endobj A noncontrolling interest (NCI) is the equity interest in a subsidiary that is not attributable, directly or indirectly, to the parent. As described in paragraph 24(b) of Concepts Statement No. <>/Metadata 2661 0 R/ViewerPreferences 2662 0 R>> Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. The reseller is subject to an agency relationship with the vendor, whether expressed or implied, in the sales incentive transaction between the vendor and the consumer. You can set the default content filter to expand search across territories. EY is a global leader in assurance, consulting, strategy and transactions, and tax services. Nonmonetary transactions within the scope of ASC 845, Nonmonetary Transactions Lease contracts under ASC 840 Contributions of cash and other assets, including promises to give cash, that are either made by certain entities or received by not-for-profit entities within the scope of ASC 720-25, Other Expenses: For example, a reporting entity that provides security monitoring services may have an acquired customer-relationship intangible asset. Within that context of determining whether a part of a collaborative arrangement is within the scope of Topic 606, the Board decided to include unit-of-account guidance that is consistent with the unit-of-account guidance in Topic 606 for distinct goods or services. It specifically addresses the accounting for modifications of contracts within the scope of Topics 310 on receivables, 470 on debt, and 840 and 842 on leases and Subtopic 815-15 on . 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. Applicability The Board decided to focus on targeted improvements to clarify when certain transactions between collaborative arrangement participants are within the scope of the revenue guidance in Topic 606. Handbooks | November 2022. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. However, the Board continues to believe that the principles in Topic 606 might be appropriate to apply to a collaborative arrangement by analogy even if the counterparty is not considered a customer, provided there is no other more relevant authoritative guidance. Such disclosure shall include research and development costs incurred for a computer software product to be sold, leased, or otherwise marketed. The Board considered that feedback during its redeliberations of the issues addressed by the proposed Update, as described in the discussion below. 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. Item added to 'My Purchases' Until you submit the order, another StampWorld user may purchase this item. Accordingly, the amendments in this Update do not result in any changes to the accounting for those transactions. 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. 1434 0 obj <>stream BC24. Company A has determined that the fair value of the noncontrolling interest is $1 million. If not included in cost of sales, the reporting entity should follow the guidance in. A change in contingent consideration impacts the cost basis of acquired assets, which may also impact the income statement through subsequent accounting for the acquired asset. Classification of amortization of the intangible asset in selling, general, and administrative expense may be most consistent with the nature of the asset because the intangible asset is not typically associated with providing the service to customers. 0 @AH320dlX@ s3@ A transfer of nonmonetary assets for which no assets are received or relinquished in exchange (nonreciprocal transfer). All rights reserved. Consider removing one of your current favorites in order to to add a new one. endstream endobj 1374 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. Collaborative arrangements (Topic 808)Clarifying the interaction between Topic 808 and Topic 606. Partner, Dept. for under the guidance in ASC 845 will now fall under the guidance in ASC 610-20 if they do not involve a customer. Immediately prior to the acquisition, Company A would remeasure the PHEI to fair value, recognizing a gain on remeasurement of $400,000 ($500,000 acquisition date fair value less carrying value of $100,000). [uLBCn20x10DY5fS ] yD@YC Hw15A1 B 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. In other words, the reporting entity should account for the sale the same way it accounts for sales to other customers. The agreement also includes payment of an advertising allowance of $1,000 to FSP Corp by Toy Company. EY helps clients create long-term value for all stakeholders. This content is copyright protected. Regina Croucher. endstream endobj 1373 0 obj <>stream We use cookies to personalize content and to provide you with an improved user experience. 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. Copyright 2018 by Financial Accounting Foundation. In some cases, a vendor provides consideration to resellers to reimburse them for sales incentives (e.g., rebates or coupons) offered to end customers to stimulate consumer demand for the vendors products. However, some respondents noted that diversity in practice related to collaborative arrangements will continue to exist given the diverse nature of those arrangements. 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. Please seewww.pwc.com/structurefor further details. Company A determines that the transaction should be accounted for as an asset acquisition, as the legal entity acquired does not constitute a business. <> 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. Instead, financing costs relating to the issuance of debt should be recognized as a reduction of the debt balance in accordance with. 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. 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. 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. An entity would still be expected to follow the disclosure requirements under Topic 606 for only those transactions that are within the scope of Topic 606. The allocation of indirect costs (e.g., fixed production overheads) should be based on normal capacity, which is defined in. HMo0. Those entities are analogizing to those Topics either because the scope of the revenue guidance is not directly applicable or because the interaction between Topic 808 and those Topics is unclear. Property, plant, equipment and other assets. 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. 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. <> 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. You must log in{"id":"id-b3e87497-1bf3-4192-9d6b-f521d948ff90","action":"login-q3j74v"} to view this content and have a subscription package that includes this content. BC3. 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. Download from EY Accounting Link # ASC 840 # leases # US GAAP 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. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements. The Board clarified that a contract that is not completed in the context of those expedients, as written in paragraph 808-10-65-2(e), refers to an arrangement for which all (or substantially all) of the revenue and expenses were recognized in accordance with guidance that was in effect before the date of initial application. For asset acquisitions in which some or all of the consideration transferred consists of noncash assets, liabilities incurred to the seller, or equity interests issued to the seller, reporting entities should first determine whether the transaction is within the scope of other US GAAP. Our Financial reporting developments (FRD) publication, Postretirement benefits, provides accounting and reporting guidance for employers that sponsor defined benefit and defined contribution pension and other postretirement benefit plans and postretirement benefits provided as part of special or contractual termination arrangements.The FRD provides an overview of the principles of . An entity should disclose its election. The acquirer and seller in an asset acquisition may have a preexisting relationship before negotiations for the exchange transaction begin that is effectively settled as a result of the asset acquisition. We are aware of diversity in practice regarding the subsequent treatment of the income statement effect of changes to the cost basis of the acquired assets. 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