In both scenarios, the reseller generally has no control over which consumers receive or choose to apply these incentives. 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. 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. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. If a part or parts of the collaborative arrangement are potentially with a customer, an entity would then apply the distinct good or service unit-of-account guidance in Topic 606 to determine whether there is a unit of account that should be accounted for under Topic 606. It is for your own use only - do not redistribute. 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. BC12. Judgment is required to determine the elements of an arrangement that should be accounted for as part of the exchange transaction and elements that should be accounted for separately. 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. The Board received 27 comment letters in response to the proposed Update. Therefore, the different alternatives the Board considered were taken from existing concepts in Topic 606, such as transfer of control and customer. These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. endobj The carrying value of Company As investment is $100,000 and its fair value is $500,000. 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. endstream endobj 1372 0 obj <>stream 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. 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. How should the $1,000 advertising allowance be recorded by FSP Corp? 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. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Others view each transaction between collaborative arrangement participants, such as an upfront payment or a cost-reimbursement payment, as a separate unit of account. 78uZE~*x!o]|)Q/@;,%4yM``1mnigKNfs8YfU_)lBLf&hLU XpSTS E>AC Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. 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. It has also been updated to further enhance and clarify our interpretive guidance in several areas. The Board ultimately decided that the scope of the revenue guidance in Topic 606 should be aligned for units of account inside and outside collaborative arrangements; that is, the revenue guidance in Topic 606 should be applied if the collaborative arrangement participant is a customer in the context of a given unit of account. BC8. FSP Corp will contract directly with the advertising agencies and pay for the total cost of the campaign. USSR stamp catalogue. 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. 07-1, Accounting for Collaborative Arrangements. Issue 07-1 defined the characteristics of a collaborative arrangement and primarily provided scope, presentation, and disclosure guidance. The Board rejected including within the scope of this project collaborative-type arrangements structured in a separate legal entity. However, to address the concerns that the amendments in this Update potentially could lead to more transactions without recognition and measurement guidance in Topic 808, the Board decided to continue to permit an entity to apply the revenue guidance in Topic 606 by analogy or, if there is no appropriate analogy, as a policy election, without requiring the entity to apply all the guidance in Topic 606, as long as it presents the transaction separate from revenue recognized from contracts with customers. 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. Water Company provides FSP Corp with $10,000 to ensure that its products receive prominent placement on store shelves (that is, it pays a slotting fee). Contingent consideration recognized should be included in the initial cost of the assets acquired. The Board noted that current guidance allows an entity to evaluate the terms of a collaborative arrangement to determine how best to account for and present those transactions. 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. 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. FSP Corps expenses for these advertisements are $2,000, and it expects to receive $1,000 from Toy Company. In March 2015, the FASB received an agenda request asking the Board to clarify the interaction between Topic 606 and Topic 808 and to provide recognition and measurement guidance for collaborative arrangements to address certain areas of diversity. /EdB+hh? Please see www.pwc.com/structure for further details. An entity was permitted to present the payments based on an analogy to other Topics or, if there is no appropriate analogy, a reasonable, rational, and consistently applied accounting policy election. Some transactions, however, involve either of the following: Both exchanges and nonreciprocal transfers that involve little or no monetary assets or liabilities are referred to as nonmonetary transactions. How should Company A account for the asset acquisition, including the previously held equity interest (PHEI)? 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. For example, the depreciation of a manufacturers factory and production equipment would likely be considered fixed overhead and capitalized as part of inventory costs, while the depreciation of corporate headquarters would typically be considered part of general and administrative expense. 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. hb```yl9B 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. Total depreciation and amortization of long-lived assets is required to be disclosed in a reporting entitys financial statements. Gains or losses of a similar nature that are not individually material shall be aggregated. 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. BC3. 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. 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. Regina Croucher. An acquirer may obtain control of an asset or group of assetsthrough acquisition of a controlling interestin a legal entity in which it previously held a noncontrolling equity interest immediately prior to the acquisition. 4 0 obj 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. Examples of transactions with a collaborative arrangement participant that are directly related to sales to third parties of either participant may include (a) sales of production inputs or other items to a collaborative arrangement participant that are eventually sold to a third party or (b) profit share receivables from collaborative arrangement participants for sales to third parties. (2022).". " .S01E04. . Asking the better questions that unlock new answers to the working world's most complex issues. Property, plant, equipment and other assets. Reporting entities may have flexibility as to how they present bad debt expense (i.e., expense associated with changes in the provision for receivables). An exchange with another entity (reciprocal transfer) that involves principally nonmonetary assets or liabilities. Accordingly, the amendments in this Update do not result in any changes to the accounting for those transactions. Where depreciation and amortization is classified in the statement of operations depends on therelatedassets function. Buy and sell stamps from USSR. 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. Refer to Appendix D of the publication for a summary of the updates. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. BC32. BC35. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. 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. 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. Item added to 'My Purchases' Until you submit the order, another StampWorld user may purchase this item. 7, Using Cash Flow Information and Present Value in Accounting Measurements) is different from a fair value measurement. A nonmonetary exchange has commercial substance if the entity's future cash flows are expected to significantly change as a result of the exchange. The acquirer and the seller in an asset acquisition may enter into separate arrangements at or near the time of the asset acquisition. The Board did not intend to establish an exception to the revenue requirements in Topic 606 for transactions in collaborative arrangements. There are many different types of collaborative arrangements, and the accounting for any collaborative arrangement depends on the specific negotiated terms. ASC 946-10 notes that the the Topic "only provides incremental industry-specific guidance for the entities that meet the assessment of investment company status" described in ASC 946-10-15-4 through 15-9. Welcome to Viewpoint, the new platform that replaces Inform. 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. If the consideration given is nonfinancial assets or in substance nonfinancial assets within the scope of Subtopic 610-20 on gains and losses from the derecognition of nonfinancial assets, the assets acquired shall be treated as noncash consideration and any gain or loss shall be recognized in accordance with Subtopic 610-20. Concurrent with the asset acquisition, Company A and Company B enter into a transition service agreement (TSA), under which Company B agrees to provide certain services to Company A for a period of one year after the asset acquisition at no costto Company A. The terms of significant arrangements under the research and development arrangement (including royalty arrangements, purchase provisions, license agreements, and commitments to provide additional funding) as of the date of each balance sheet presented. @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 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). 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. The fair value of the group of assets is $95 million. [uLBCn20x10DY5fS ] yD@YC Hw15A1 B 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. Example FSP 3-1, Example FSP 3-2, and Example FSP 3-3 illustrate the accounting for consideration received from a vendor. 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. 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. %%EOF 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. This edition of On the Radar offers guidance for translating the accounts of foreign entities as advised under ASC 830, otherwise known as the "functional . The classification of insurance proceeds in the income statement depends on the nature of the insurance claim. BC23. An entity should disclose its election. Buy and sell stamps from Poland. Some respondents requested that the Board clarify in what sequence the unit-of-account guidance should be applied. N1.2 Scope of ASC 845 ASC 845 includes the following definitions: Monetary assets and liabilities Assets and liabilities whose amounts are fixed in terms of units of currency by contract or otherwise (e.g., cash, short- or long-term accounts and notes receivable in cash, and short- or long-term accounts and notes payable in cash). This content is copyright protected. ASC 705 Cost of Sales and Services. s\A0W+d g"p&g"p&xc&>>>>>>J^QW+u_W+sSMs=*zTQGe=z4o7o7Y*+m}RsF.0x 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. 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. 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