A Roadmap to Accounting for Equity Method Investments and ...
A Roadmap to Accounting for Equity Method Investments and Joint Ventures
2019
The FASB Accounting Standards Codification? material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116, and is reproduced with permission.
This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.
Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.
As used in this document, "Deloitte" means Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Tax LLP, and Deloitte Financial Advisory Services LLP, which are separate subsidiaries of Deloitte LLP. Please see us/about for a detailed description of our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting.
Copyright ? 2019 Deloitte Development LLC. All rights reserved.
Other Publications in Deloitte's Roadmap Series
Business Combinations Business Combinations -- SEC Reporting Considerations Carve-Out Transactions Consolidation -- Identifying a Controlling Financial Interest Contracts on an Entity's Own Equity Convertible Debt Disposals of Long-Lived Assets and Discontinued Operations Distinguishing Liabilities From Equity Earnings per Share Environmental Obligations and Asset Retirement Obligations Equity Method Investees -- SEC Reporting Considerations Foreign Currency Transactions and Translations Income Taxes Initial Public Offerings Leases Noncontrolling Interests Non-GAAP Financial Measures Revenue Recognition SEC Comment Letter Considerations, Including Industry Insights Segment Reporting Share-Based Payment Awards Statement of Cash Flows
Complimentary printed copies of Deloitte Roadmaps can be ordered (or preordered) from Deloitte's Roadmap Store.
iii
Acknowledgments
This Roadmap reflects the thoughts and contributions of the consolidation team in Deloitte's National Office as well as the input from the many auditors and advisers in the Deloitte network who, over the past several years, have helped develop the comprehensive views and interpretations in this publication. Rob Moynihan, John Wilde, and Andy Winters led the overall preparation of the 2019 update to this Roadmap, under the guidance of Brandon Coleman. They wish to extend their deepest appreciation to Elena Cilenti, Michael Scheper, and Bailey Walsh for their hard work in updating this publication. Special thanks also go to Teri Asarito, Lynne Campbell, Amy Davidson, Geri Driscoll, David Frangione, Peter McLaughlin, Jeanine Pagliaro, and Yvonne Rudek for their editorial and desktop publishing contributions to this update.
iv
Contents
Prefacexi
Contactsxii
Chapter 1 -- Overview1
Chapter 2 -- Scope and Scope Exceptions5
2.1Overview
5
2.2Investments in Partnerships, Unincorporated Joint Ventures, and LLCs
6
2.2.1Limited Liability Companies
6
2.2.1.1LLC That Does Maintain Specific Ownership Accounts
7
2.2.1.2LLC That Does Not Maintain Specific Ownership Accounts
8
2.2.2Limited Partnership Interests in Partnerships and Similar Entities
8
2.2.3General Partnership Interests in Partnerships
8
2.2.4Corporate Joint Ventures
9
2.3Scope Exceptions
9
2.3.1Investments Accounted for in Accordance With ASC 815-10
9
2.3.2Investments in Common Stock Held by a Nonbusiness Entity
10
2.3.2.1Investments Held by Real Estate Investment Trusts
10
2.3.3Investments in Common Stock Within the Scope of ASC 810
10
2.3.4Investments Held by Investment Companies Within the Scope of ASC 946
11
2.3.4.1Investor Is an Investment Company
11
2.3.4.2Investor Is Not an Investment Company
11
2.3.5Investments in Certain Securitization Entities
11
2.4Applicability of Equity Method to Other Investments
12
2.4.1Investments Held by Not-for-Profit Entities
12
2.4.2Equity Method Investments Eligible for Fair Value Option
12
2.4.2.1Availability of the Fair Value Option for Financial Instruments With a Substantive Future
Services Component
13
2.4.2.2Change From the Equity Method to Other Method of Accounting
15
2.4.3Qualified Affordable Housing Project Investments
16
2.4.3.1Before the Adoption of ASU 2014-01
16
2.4.3.2After the Adoption of ASU 2014-01
17
2.4.4Proportionate Consolidation Method
17
v
Deloitte | A Roadmap to Accounting for Equity Method Investments and Joint Ventures (2019)
2.5Investments in In-Substance Common Stock
18
2.5.1Characteristics of In-Substance Common Stock
18
2.5.1.1Subordination
20
2.5.1.2Risks and Rewards of Ownership
21
2.5.1.3Obligation to Transfer Value
24
2.5.2Initial Determination and Reconsideration Events
25
Chapter 3 -- Applying the Equity Method of Accounting
27
3.1Overview
27
3.2General Presumption
27
3.2.1Corporations
30
3.2.2Limited Liability Companies
30
3.2.3Partnerships and Unincorporated Joint Ventures
30
3.2.4General Partnership Interest in Partnerships
31
3.2.5Corporate Joint Ventures
31
3.2.6Potential Voting Rights
31
3.2.7Direct and Indirect Interest in an Investee
32
3.2.7.1Earnings or Losses of an Investee's Subsidiary
34
3.3Other Indicators of Significant Influence
34
3.3.1Conditions Indicating Lack of Significant Influence
37
3.4Considerations Related to Certain Investments
38
3.4.1Investments Held by Real Estate Investment Trusts
38
3.4.2Investment in an Entity That Invests in QAHPs
39
3.5Reassessment of the Ability to Exercise Significant Influence
40
3.6SEC Staff's Views on Application of the Equity Method of Accounting
40
Chapter 4 -- Initial Measurement
41
4.1Overview
41
4.2Initial Measurement
41
4.2.1Commitments and Guarantees
43
4.3Contribution of Businesses or Assets for an Investment in an Equity Method Investee
45
4.3.1ADetermining Whether the Counterparty (Equity Method Investee) Is a Customer
47
4.3.1Contribution of a Business or Nonprofit Activity
47
4.3.2[Deleted]
47
4.3.3Contribution of Financial Assets
47
4.3.4AContribution of Nonfinancial Assets or In-Substance Nonfinancial Assets That Do
Not Constitute a Business or Nonprofit Activity
50
4.3.4Contributions of Real Estate or Intangibles
51
4.3.5Transactions Addressed by Other Guidance
52
4.4Contingent Consideration
52
4.5Basis Differences
54
4.5.1Bargain Purchase
56
4.5.2Tax Effects of Basis Differences
57
4.5.3Accumulated Other Comprehensive Income
59
vi
Contents
Chapter 5 -- Subsequent Measurement
60
5.1Equity Method Earnings and Losses
60
5.1.1Impact of Preferred Dividends on an Investor's Share of Earnings (Losses)
61
5.1.2Disproportionate Allocation of an Investee's Earnings or Losses in Relation to an Investor's
Ownership Interest
62
5.1.2.1Hypothetical Liquidation at Book Value Method
64
5.1.2.2Capital-Allocation-Based Arrangements
73
5.1.3Differences Between Investor and Investee Accounting Policies and Principles
75
5.1.3.1Equity Method Investee Does Not Follow U.S. GAAP
75
5.1.3.2Investee Has Elected a Private-Company Alternative
76
5.1.3.3Investee Applies Different Accounting Policies Under U.S. GAAP
78
5.1.3.4Investee Adopts a New Accounting Standard on a Different Date
78
5.1.3.5Investee Applies Investment Company Accounting
80
5.1.4Accounting for an Investor's Share of Earnings on a Time Lag
81
5.1.5Adjustments to Equity Method Earnings and Losses
83
5.1.5.1Intra-Entity Profits and Losses
83
5.1.5.2Amortization or Accretion of Basis Differences
90
5.1.5.3Investee Capital Transactions
92
5.1.5.4Other Comprehensive Income
95
5.1.6Dividends Received From an Investee
96
5.1.7Interests Held by an Investee
99
5.1.7.1Reciprocal Interests
99
5.1.7.2Earnings or Losses of an Investee's Subsidiary
101
5.1.8Contingent Consideration
102
5.2Equity Method Losses That Exceed the Investor's Equity Method Investment Carrying Amount
103
5.2.1Guarantee of an Equity Method Investee's Third-Party Debt
107
5.2.2Collateral of the Investee Held by the Investor When Equity Losses Exceed the
Investor's Investment
107
5.2.3Investee Losses If the Investor Has Other Investments in the Investee
108
5.2.3.1Percentage Used to Determine the Amount of Equity Method Losses
113
5.2.4Additional Investment After Suspension of Loss Recognition
117
5.3Stock-Based Compensation Granted by an Investor to Employees of an Equity Method Investee 118
5.3.1Accounting in the Financial Statements of the Contributing Investor Issuing the Awards
121
5.3.2Accounting in the Financial Statements of the Investee Receiving the Awards
121
5.3.3Accounting in the Financial Statements of the Noncontributing Investors
121
5.3.4Stock-Based Compensation Granted by an Investor to Employees of an Equity Method
Investee When the Investee Reimburses the Contributing Investor
129
5.4Costs Incurred on Behalf of an Investee
129
5.4.1Accounting for Costs Incurred on Behalf of an Investee in the Financial Statements
of the Investor
129
5.4.2Accounting for Costs Incurred on Behalf of an Investee in the Financial Statements
of the Investee
131
vii
Deloitte | A Roadmap to Accounting for Equity Method Investments and Joint Ventures (2019)
5.5Decrease in Investment Value and Impairment
131
5.5.1Identifying Impairments
132
5.5.2Measuring Impairment
134
5.5.2.1Consideration of Basis Differences After Recognizing an Impairment
135
5.5.2.2Consideration of Cumulative Translation Adjustment in an Impairment Analysis
137
5.5.2.3Consideration of Nonrecourse Debt
138
5.5.3Impairment of Investee Goodwill
138
5.5.4Events During a Lag Period -- Impact on Impairment Evaluation
138
5.5.5Qualified Affordable Housing Project Investments
139
5.6Change in Level of Ownership or Degree of Influence
140
5.6.1Increase in Level of Ownership or Degree of Influence -- Control Initially Obtained
(Equity Method to Consolidation)
141
5.6.2Increase in Level of Ownership or Degree of Influence -- Significant Influence Initially
Obtained (ASC 321 to Equity Method)
141
5.6.2.1Investee Bankruptcy
143
5.6.3Increase in Level of Ownership or Degree of Influence -- Significant Influence Retained
143
5.6.4Decrease in Level of Ownership or Degree of Influence -- Significant Influence Retained
144
5.6.5Decrease in Level of Ownership or Degree of Influence -- Significant Influence Lost
(Equity Method to ASC 321)
146
5.6.5.1OCI Upon Discontinuation of the Equity Method of Accounting
149
5.7Real Estate Investments151
5.7.1Sale of an Investment in a Real Estate Venture
151
5.8Interest Costs
151
5.8.1Capitalization of Interest Costs
151
5.8.2Interest on In-Substance Capital Contributions
154
Chapter 6 -- Presentation and Disclosure
6.1Overview 6.2Presentation
6.2.1Balance Sheet 6.2.1.1SEC Registrants 6.2.1.2Other Entities
6.2.2Income Statement 6.2.2.1Tax Effects 6.2.2.2Disposal Transactions
6.2.3Other Comprehensive Income 6.2.4Cash Flows 6.2.5Earnings per Share 6.3Disclosures 6.3.1Equity Method Investment Disclosures
6.3.1.1Other Disclosure Considerations 6.3.2Related-Party Disclosure Requirements 6.3.3Nonmonetary Transaction Disclosure Requirements 6.3.4Discontinued Operation Disclosure Requirements
155
155 155 155 156 156 156 158 158 159 160 161 162 162 166 167 167 168
viii
................
................
In order to avoid copyright disputes, this page is only a partial summary.
To fulfill the demand for quickly locating and searching documents.
It is intelligent file search solution for home and business.
Related download
- chapter 22 valuing firms with negative earnings
- the long term and short term effects of equity pledge on
- portfolio insights investing in private equity
- negative equity veiled value and the erosion of price
- going negative what to do with negative book equity stocks
- a roadmap to accounting for equity method investments and
- expected return research affiliates
- asymmetric dynamics in the correlations of global equity
- influence analysis of return on assets roa return on
Related searches
- interview method advantages and disadvantages
- investments and portfolio management pdf
- accounting straight line method loan
- scientific method vocabulary and definitions
- scientific method steps and definitions
- elimination method problems and answers
- how to use the elimination method algebra
- accounting for a small business
- ideas for scientific method experiments
- building a roadmap in microsoft
- scientific method steps and examples
- accounting for duties and tariffs