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Subsequent Events, ASC 855

Subsequent Events
Statement of Financial Accounting Standards No. 165, May 2009
“Subsequent Events”

Events occurred after (a), before (b)
(a) balance sheet date
(b) date of financial statements are issued: public entities
date of financial statements become available to be issued: nonpublic entities

Financial statements are issued
–> widely distributed for general use

Available to be issued
–> all necessary approvals were obtained to be issued

Two types of subsequent events
Type 1: recognized subsequent events
Type 2: nonrecognized subsequent events

Recognized subsequent events
–> provide evidence about conditions existed at the balance sheet date
Nonrecognized subsequent events
–> provide evidence about conditions that did not exist at the balance sheet date

Recognition
The effects of recognized subsequent events
–> recognized in the financial statements
The effects of nonrecognized subsequent events
–> not recognized in the financial statements

Disclosures
Two dates are disclosed
date 1: up to this date, subsequent events have been evaluated
date 2: on this date, financial statements are issued or available to be issued

Nature and the extent of its financial effects are disclosed
for the following events:
–> nonrecognized subsequent events
–> that should be disclosed to avoid misleading information

 

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Nonmonetary Transactions, ASC 845

Nonmonetary Transactions
APB Opinion 29, May 1973
“Accounting for Nonmonetary Transactions”

SFAS 153, December 2004
“Exchanges of Nonmonetary Assets
an amendment of APB Opinion No. 29”

Basic Principle
(A) Fair value of nonmonetary asset “received”
(B) Fair value of nonmonetary asset “surrendered”
(C) Book value of nonmonetary asset “surrendered”

1. Exchange of Nonmonetary Assets
–> Cost of nonmonetary asset received is (B)
–> Recognize gain or loss on the exchange

2. If (A) is more evident than (B)
–> use (A) as the cost of the asset acquired

Cases of Nonreciprocal Transfers
1. When an asset is transferred, in a nonreciprocal transfer
–> Transfer is recorded at (B)
–> Recognize gain or loss on the exchange

2. When an asset is received, in a nonreciprocal transfer
–> There is no asset surrendered
–> Cost of nonmonetary asset received is (A)

Basic Principles Modified
If the transaction lacks “commercial substance”
–> Cost of nonmonetary asset received is (C)
–> Gain or loss on the exchange is not recognized

Commercial Substance
1. The exchange has “commercial substance”
–> if there is a significant change in future cash flows
–> after the exchange

2. Significant change in future cash flows

(1) Significant change in the “configuration” of cash flows
–> configuration: amount, timing, risk

(2) Entity-specific values of assets received and surrendered
–> are significantly different

Boot: Monetary Consideration
If the amount of “monetary consideration” included is
–> 25% or more of the fair value of exchange
–> then, the exchange is considered as a “monetary exchange”

If the amount of “monetary consideration” < 25% of fair value of exchange
1. The party that pays “monetary consideration”
–> No gain is recognized

2. The party that receives “monetary consideration”
–> Recognized gain = total gain x ratio
–> ratio = (1) / (2)
–> (1) = amount of monetary consideration
–> (2) = value of total consideration received

Recognition of Loss
“Loss on the exchange”
–> is recognized in full amount

 

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Sale-Leaseback Transactions, ASC 840

Leases
SFAS 13, November 1976
“Accounting for Leases”

Sale-Leaseback
1. Entity A sell a property to Entity B
2. Entity B leases the property to Entity A
3. Entity A is the seller-lessee
4. Entity B is the purchaser-lessor

Classification of sale-leaseback by seller-lessee
1. Sale-capital-leaseback
2. Sale-operating-leaseback

Classification of sale-leaseback by purchaser-lessor
1. Purchase-direct-financing-leaseback
2. Purchase-operating-leaseback

Sale-capital-leaseback
1. The lease meets one of (A), (B), (C), (D)
2. A gain or loss on the sale of property is deferred
3. Deferred gain or loss on the sale of property is amortized
–> in proportion to the amortization of the leased asset

Sale-operating-leaseback
1. The lease does not meets any of (A), (B), (C), (D)
2. A gain or loss on the sale of property is deferred
3. Deferred gain or loss on the sale of property is amortized
–> in proportion to the rent expense charged over the lease term

Purchase-direct-financing-leaseback
1. The lease meets one of (A), (B), (C), (D) and both of (E), (F)
2. Record the purchase of property
3. Apply the accounting for a direct financing lease

Purchase-operating-leaseback
1. The lease does not meet the requirement for a direct financing lease
2. Record the purchase of property
3. Apply the accounting for an operating lease

Exceptions
Case 1. The seller-lessee leases only a minor portion
–> of the remaining use of the property

Case 2. The seller-lessee retains
–> more than a minor portion
–> but less than substantially all
–> of the remaining use of the property
and
–> gain on the sale > (2a) or (2b)
(2a) recorded amount of leased asset
(2b) present value of minimum lease payments

Case 3. Fair value of the property < undepreciated cost
Case 1
The sale and the leaseback are recorded
–> as “separate” transactions

Case 2
1. Sale-capital-leaseback
–> Gain on the sale – (2a) is
–> recognized at the time of sale

2. Sale-operating-leaseback
–> Gain on the sale – (2b) is
–> recognized at the time of sale

Case 3
A loss is recognized at the time of sale
–> up to the amount of (3a)
(3a) = undepreciated cost – fair value

Capital lease criteria
(A) Ownership transfer
–> Ownership is transferred by the end of the lease term
(B) Bargain purchase option
-> Lessee has an option purchase at the price lower than the fair value
(C) Lease term: 75% rule
–> Lease term ≥ 75% of economic life of the lease property
(D) Minimum lease payment: 90% rule
–> Present value of minimum lease payments > 90% of fair value of the lease property

Additional criteria for lessor
(E) Collectibility of minimum lease payment
–> reasonably predictable
(F) No important uncertainties
–> about the additional costs to be incurred by lessor
–> when such costs are not reimbursable

 

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