FASB proposes accounting for joint venture formations
Defining Issues | October 2022
The proposed ASU would require a joint venture formation transaction to be measured at fair value.
The FASB proposes to resolve current diversity in practice by specifying how net assets contributed to a joint venture would be accounted for on the joint venture鈥檚 formation.
Applicability
- All entities involved in newly formed and existing joint ventures.
Relevant dates
- December 27, 2022 鈥� Comments due
Key Impacts:
The proposed ASU would require joint ventures to:
- Recognize a new basis of accounting for contributed net assets as of the formation date.
- Measure the contributed identifiable net assets at fair value on the formation date using the business combination guidance in ASC 805-20 鈥� with certain exceptions 鈥� regardless of whether an investor contributes a business.
- Measure the net assets鈥� fair value based on 100% of the JV鈥檚 equity immediately following formation.
- Record goodwill (or an equity adjustment, if negative) for the difference between the fair value of the JV鈥檚 equity and its net assets.
- Provide disclosures about the nature and financial effect of the formation transaction.
The proposed ASU would allow existing JVs to apply the guidance retrospectively.聽
Report contents
- Source and applicability
- Fast facts, impacts, actions
- Background
- A new basis of accounting
- Disclosures
- Effective dates and transition
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