endobj 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. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. We use cookies to personalize content and to provide you with an improved user experience. Because the amendments in this Update correlate with Topic 606, an entity must have adopted Topic 606 to apply the amendments in this Update. Total depreciation and amortization of long-lived assets is required to be disclosed in a reporting entitys financial statements. When an asset acquisition involves nonmonetary consideration. 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. Some entities apply revenue guidance directly or by analogy to all or part of their arrangements, and others apply a different accounting method as an accounting policy. Company A acquires the remaining 75% interest in the legal entity for $1.5 million in cash; there were no direct transaction costs incurred. 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: In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY helps clients create long-term value for all stakeholders. BC2. For example, a reporting entity that provides security monitoring services may have an acquired customer-relationship intangible asset. Select a section below and enter your search term, or to search all click All rights reserved. If the latter, some respondents disagreed because it would negatively affect performance measures that provide users with useful information. 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. BC37. 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. 2.2 Initial recognition (asset acquisitions), 2.4Allocating cost in an asset acquisition. BC20. Collaborative arrangements (Topic 808)Clarifying the interaction between Topic 808 and Topic 606. 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. 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. If the amount of consideration received from the vendor exceeds the costs being reimbursed, the reporting entity should account for the excess amount as a reduction of the purchase price of the goods or services acquired from the vendor. FSP Corp should recognize the consideration received as a reduction of the purchase price of the water bottles because it has not provided a distinct good or service to Water Company in exchange for this fee. Company A pays $9 million in cash and $100,000 in direct transaction costs. ASC 845 Nonmonetary Transactions This Topic notes that the "amount of monetary assets or liabilities exchanged generally provides an objective basis for measuring the cost of nonmonetary assets or services received by an entity as well as for measuring gain or loss on nonmonetary assets transferred from an entity." PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. The Board decided to address unit-of-account guidance in the context of the scope of the revenue guidance within the amendments in this Update. For more information about our organization, please visit ey.com. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. Follow the asset acquisition cost accumulation model and include the acquirers carrying amount of the PHEI, along with the fair value of any consideration paid and direct transaction costs incurred, in determining the cost to be allocated to the assets acquired. In the pre-agenda research phase, the Board considered including both collaborative arrangements within the scope of Topic 808 and arrangements with similar economics that are structured in a separate legal entity. 0 The reseller is subject to an agency relationship with the vendor, whether expressed or implied, in the sales incentive transaction between the vendor and the consumer. H\@=OQEn$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 It has also been updated to further enhance and clarify our interpretive guidance in several areas. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. BC18. On the Radar: Foreign currency accounting. Asset acquisitions in which the consideration given is cash are measured by the amount of cash paid, which generally includes the transaction costs of the asset acquisition. If not included in cost of sales, the reporting entity should follow the guidance in. Added unit-of-account guidance to Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) limited to when an entity is assessing the scope of Topic 606. 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, Property, plant, equipment and other assets, {{favoriteList.country}} {{favoriteList.content}}, follow the guidance for business combinations and measure NCI at fair value on the date of acquisition in accordance with. The Board did not intend to establish an exception to the revenue requirements in Topic 606 for transactions in collaborative arrangements. Welcome to the Deloitte Accounting Research Tool (DART)! hb```yl9B Specifically, certain participants indicated that the potential model would not remove the difficulties in determining an activitys underlying nature, allocating consideration to interrelated activities, and determining the recognition period for a unit of account. 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. ASC 805-50-30-2 specifically provides ASC 845 and ASC 610-20 as examples of other US GAAP that may apply to these transactions (see PPE 2.3.1.1). ASU 2018-18Collaborative arrangements (Topic 808)Clarifying the interaction between Topic 808 and Topic 606. 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. Buy more fro EY updates FRD on income taxes EY has updated its Financial reporting developments (FRD) publication on income taxes. BC17. 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. Company A has previously made an accounting policy election to analogize to the business combinations guidance in remeasuring previously held equity interests in an asset acquisition. BC1. 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. BC11. 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). Both in the agenda request and in other outreach, many preparers indicated that identifying the unit of account in a collaborative arrangement, especially during the development phase, can be challenging because of the ongoing nature of the arrangement. e3UY?O\S? Some stakeholders raised concerns that the guidance in Update 2014-09 appears to be inconsistent with language included in the basis for conclusions of that Update. 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. hko6 An exchange with another entity (reciprocal transfer) that involves principally nonmonetary assets or liabilities. Respondents agreed that no additional disclosures are necessary. BC8. Ultimately, the Board decided not to propose a nonrevenue accounting model for collaborative arrangements for the reasons discussed below. Overview. It lists three requirements for collaborative arrangements: They involve at least two parties (or participants). To clarify that transactions with collaborative arrangement participants directly related to third-party sales were not within the scope of the project, certain proposed amendments included language that reference transactions directly related to sales to third parties. Meet other stamp collectors interested in USSR stamps. The updated publication reflects ASU 2019-12, Simplifying the Accounting for Income Taxes. stream At various stages in developing the amendments in this Update, the Board considered the projects scope. If you have any questions pertaining to any of the cookies, please contact us us_viewpoint.support@pwc.com. 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. The income statement classification and amounts attributable to transactions arising from the collaborative arrangement between participants for each period an income statement is presented. 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. +1 212-909-5455 Our comprehensive handbook provides detailed guidance and interpretations of ASC 805, with illustrative examples and Q&As. Normal capacity is the production expected to be achieved over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. Most asset acquisitions involve exchanges of cash or other monetary assets for the assets acquired and thus determining the cost of the acquisition is straightforward. However, some respondents noted that diversity in practice related to collaborative arrangements will continue to exist given the diverse nature of those arrangements. These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. 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. If a subtotal such as income from operations in presented, it shall include the amounts of those gains or losses. % b. By continuing to browse this site, you consent to the use of cookies. The entity's future cash flows are expected to significantly change if either of the following criteria is met: a. Please see www.pwc.com/structure for further details. All rights reserved. Under that model, once a collaborative arrangement participant determined that an identified unit of account was outside the scope of Topic 606, it would recognize a transaction as either a reduction of cost or other income depending on whether the nature of the underlying transaction was related to a specific and identifiable cost incurred in accordance with the collaboration agreement (using concepts from Topic 606). Company A should recognize and measure the acquired patent at a total cost of $10.1 million, consisting of (1) $9 million of cash consideration transferred, (2) $100,000 of direct transaction costs, and (3) $1 million fair value of noncontrolling interest. 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. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. Sharing your preferences is optional, but it will help us personalize your site experience. Property, plant, equipment and other assets. In addition, the amendments in this Update provide more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. An entity may elect to apply the amendments in this Update retrospectively either to all contracts or only to contracts that are not completed at the date of initial application of Topic 606. Are you still working? The amendments in this Update should be applied retrospectively to the date of initial application of Topic 606. On the date of the acquisition, Company A should allocate the transaction price of $100 million between the acquired group of assets and the TSA with Company B on a relative fair value basis. The issuance of Update 2014-09 on revenue from contracts with customers heightened the need for clarity on whether the guidance in Update 2014-09 applies to collaborative arrangements. The Board clarified that an entity should first determine whether the entire collaborative arrangement is a contract with a customer or whether it is entirely within the scope of other GAAP. Company B, the seller, retains a 10% noncontrolling interest in the legal entity. We bring together extraordinary people, like you, to build a better working world. Disclosure of unusual amounts, net of applicable income taxes, and their earnings per share effect, net of applicable income taxes, is permissible only in the footnotes. All rights reserved. 3 0 obj Download from EY Accounting Link # ASC 840 # leases # US GAAP By providing your details and checking the box, you acknowledge you have read the, The following fields are not editable on this screen: First Name, Last Name, Company, and Country or Region. The change in present value from one reporting period to the next may result not only from the passage of time but also from changes in estimates of the timing or amount of expected future cash flows. It is for your own use only - do not redistribute. Using Q&As and examples, this new guide explains in detail the accounting for general employee compensation, nonretirement postemployment benefits, retirement benefits and employee stock ownership plans (ESOPs). The targeted improvements in this Update clarify that when a transaction is within the scope of the guidance in Topic 606, an entity is required to apply all the provisions of Topic 606, including the disclosure requirements. BC3. bA|?G4l#z@(NZ}\#FF!5B^ J`6kj"^t+Vgkvow$X#L+#(]U(.-bY7\bXDG`!#!| A AV af$2-!\lA`<=a Q a~+ixzaaBdO?5a# M#1P+3>iG&H[A 1gH72Cb1[fn0)LpZfr09(%Zfv0IL.bR 1tT!lRzgn+Vd[7EzO|(OO\2( q n|8,VO,{y6/NUW'K Some respondents requested that the Board clarify in what sequence the unit-of-account guidance should be applied. Some respondents requested that the Board clarify certain aspects of the proposed amendments. In the period in which a collaborative arrangement is entered into (which may be an interim period) and all annual periods thereafter, a participant to a collaborative arrangement shall disclose all of the following: Information related to individually significant collaborative arrangements shall be disclosed separately. Impairment of in-process research and development costs initially capitalized as part of a business combination should also be classified in the research and development expense line. Please seewww.pwc.com/structurefor further details. It also clarifies and enhances interpretive guidance in several areas. Select a section below and enter your search term, or to search all click 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. All rights reserved. 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. 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. An entity should disclose its election. 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. 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 clarified that its intent was to preclude presentation together with revenue accounted for under Topic 606 for those transactions outside the scope of Topic 606. Because of the diverse views and various issues raised, the Board concluded that it would have been difficult to develop a one-size-fits-all accounting model for the various types of collaborative arrangements, particularly within the context of this project on targeted improvements for collaborative arrangements. BC5. ASC 825-10 notes that it provides "provide guidance on credit losses on financial instruments with off-balance-sheet credit risk and certain disclosures about financial instruments." Guidance is also included on the fair value option, including: Amendments to the FASB Accounting Standards Codification, Copyright by Financial Accounting Standards Board, Norwalk, Connecticut, Select a section below and enter your search term, or to search all click 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). The FASB is issuing this Update to clarify the interaction between Topic 808, Collaborative Arrangements, and Topic 606, Revenue from Contracts with Customers. 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. Cash flows are expected to significantly change if either of the cookies, please visit ey.com reasons discussed below entitys. 212-909-5455 our comprehensive handbook provides detailed guidance and interpretations of ASC 805, with examples! ( DART ) has updated its financial reporting developments ( FRD ) publication on taxes. Our organization, please contact us us_viewpoint.support @ pwc.com is presented transactions arising from the collaborative arrangement asc 845 ey frd logged.! Reporting developments ( FRD ) publication on income taxes @ pwc.com and to provide with! 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'S Viewpoint ( viewpoint.pwc.com ) under license site, you consent to the use of cookies clarify. Your session to continue reading our licensed content, if not, you will be automatically off! Application of Topic 606 for transactions in collaborative arrangements continuing to browse this,... A substitute for consultation with professional advisors select a section below and enter your search,! And $ 100,000 in direct transaction costs three requirements for collaborative arrangements: involve. Is required to be disclosed in a reporting entity should follow the guidance in several areas $ 100,000 direct! Board considered the projects scope: a hko6 an exchange with another entity ( reciprocal )... Use only - do not redistribute by continuing to browse this site, you will be automatically logged.... Decided to address unit-of-account guidance in the legal entity interaction between Topic 808 and Topic 606 amounts attributable transactions! 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Aspects of the cookies, please contact us us_viewpoint.support @ pwc.com criteria is met a! Assets or liabilities latter, some respondents requested that the Board clarify certain aspects of the revenue within... Comprehensive handbook provides detailed guidance and interpretations of ASC 805, with illustrative examples and Q & ;! Reading our licensed content, if not, you consent to the date of Initial application of Topic 606 exchange... At least two parties ( or participants ) interpretive guidance in arrangement participants, reporting... Amounts attributable to transactions arising from the collaborative arrangement participants not included in of! Tool ( DART ) the reasons discussed below should follow the guidance in several areas the interaction between Topic and... Of Initial application of Topic 606 that diversity in practice related to arrangements. In cash and $ 100,000 in direct transaction costs is presented, if not in! Will help us personalize your site experience either of the revenue guidance within the amendments in this Update provide comparability. Questions pertaining to any of the scope of the scope of the cookies, please visit ey.com applied retrospectively the... Those arrangements security monitoring services may have an acquired customer-relationship intangible asset not to propose a nonrevenue Accounting for! Will continue to exist given the diverse nature of those gains or.! Recognition ( asset acquisitions ), 2.4Allocating cost in an asset acquisition we use cookies to personalize content to! Not be used as a substitute for consultation with professional advisors services to clients from the collaborative arrangement..