Nonfinancial Assets Guidance to Coincide with FASB Revenue Standard

February 23, 2017

The Financial Accounting Standards Board’s (“FASB”) latest Accounting Standards Update (“ASU”) clarifies guidance to help determine when gains and losses on nonfinancial assets should be recognized.

Issued as ASU No. 2017-05, Other Income—Gains and Losses From the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, the amendments clarify the term “in substance nonfinancial asset” to inform financial reporting professionals which transactions are part of the nonfinancial asset derecognition guidance. The FASB had failed to define the term in ASU No. 2014-09, Revenue From Contracts With Customers (Topic 606).

The amendments also include the following:

  • All businesses and nonprofit activities are excluded from Subtopic 610-20. In its place, the derecognition of all businesses and nonprofit activities (minus those associated with conveyances of oil and gas mineral rights or contracts with customers) must be accounted for according to the guidance under Subtopic 810-10, Consolidation—Overall.
  • Guidance on partial sales of nonfinancial assets, and contributions of such assets to a joint venture or other noncontrolled investee.
  • The exception under Topic 860, Transfers and Servicing, for transfers of investments in real estate entities is eliminated.

ASU No. 2017-05 will be effective concurrently with ASU No. 2014-09; both standards will go into effect for public companies in 2018, and privately held businesses in 2019.