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Spiceland: Intermediate Accounting, 9/e: 125972266x
For the latest FASB Updates: FASB Updates Spiceland, Sepe, Nelson and Thomas are committed to providing complete and up-to-date content to users of our Intermediate Accounting text. Check this page periodically to find out about emerging accounting pronouncements that affect financial reporting. Instructor PowerPoints detailing the Accounting Standards updates on revenue recognition, financial instruments, and leases are available here:
Accounting Standards Update No. 2017–04: Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment Accounting Standards Update 2017–04, issued in January of 2017, eliminates Step 2 from the goodwill impairment test. Step 2 requires companies to compute the implied fair value of goodwill at the impairment testing date. The implied fair value of goodwill is computed similar to fair value of goodwill in a business combination. Under ASU 2017-04, impairment of goodwill is computed based on current Step 1. This requires impairment loss to be the amount by which the carrying amount of the reporting unit exceeds its fair value. The impairment loss cannot exceed the carrying amount of goodwill allocated to that reporting unit. ASU 2017-04 is meant to reduce the cost and complexity of evaluating goodwill for impairment by eliminating Step 2. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if impairment testing (Step 1) is necessary. The effective date of the ASU is for fiscal years beginning after December 15, 2019. Early adoption is permitted for fiscal years beginning after January 1, 2017. The ASU should be implemented on a prospective basis. Changes to Spiceland 9e: Discussion of Step 2 on page 608 should be eliminated, and it should be noted that impairment under the ASU will be based on Step 1. Students should read the Where We’re Headed Box on page 609 that provides an explanation for the measurement of goodwill impairment as provided under the new ASU. Using the information in Illustration 11-22, the book value of net assets ($440) exceeds the fair value of the reporting unit ($360), so the entry for the impairment loss would be:
Loss on impairment of goodwill ………………… 80 Discussion of Step 2 for measurement of goodwill impairment under U.S. GAAP in the IFRS box on page 611 can be eliminated. The ASU more closely aligns U.S. GAAP and IFRS, although IFRS requires impairment testing at the cash-generating unit. Discussion of Step 2 can be eliminated from summary Illustration 11-25 on page 612.In the Concept Review Exercise beginning on page 613, measurement of goodwill impairment includes Step 1 only. The book value of net assets ($600) exceeds the fair value of the reporting unit ($540), so the amount of goodwill impairment is $60. The ASU affects the answers to Q11-18, Q11-22, BE11-16, E11-30, E11-32, P11-12, and RC11-9. The FASB is currently working on a number of projects that could result in significant changes in financial reporting practices. Here is a link to a list of exposure drafts that are currently outstanding. Spiceland: Financial Accounting, 4/e: 1259307956
For the latest FASB Updates: Accounting Standards Update No. 2016-1: Financial Instruments--Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities Update 2016–1, issued in January of 2016, disallows accounting for equity investments as available-for-sale securities (with changes in fair value shown in other comprehensive income), which is required for some investments under current GAAP. Instead, all investments in equity securities in which the investor lacks significant influence will be accounted for as “fair value-net income” (FV-NI), with changes in fair value included in net income for the period, as trading securities are today. The ASU does not change how or when the equity method is used for large equity investments, and it also doesn’t affect accounting for debt investments, which still are accounted for as held-to-maturity, trading securities, or available-for-sale securities. The effective date of the ASU is for fiscal years beginning after December 15, 2017. Early adoption is not permitted for the change in accounting for equity investments. Changes to Spiceland, Thomas, and Herrmann 4e: The ASU requires the discussion in Appendix D (Investments) to be modified. The discussion on pages D-4 and D-5 should no longer make the distinction between trading securities and available-for-sale securities for equity investments. For all equity investments in which the investor lacks significant influence, fair value adjustments are recorded in net income. Therefore, only one journal entry is needed on page D-5 to record an increase in fair value as a credit to Unrealized Holding Gain – Net Income. A decrease in fair value would be recorded as a debit to Unrealized Holding Loss – Net Income. All discussion of comprehensive income should be eliminated. Illustration D-3 should be modified to include only the income statement effect of fair value changes. The ASU requires changes in end-of-chapter material to account for equity investments as FV-NI rather than available-for-sale securities. This affects Self-Study Question #4, Review Questions #7, #10, and #11, BED-4, BED-5, BED-6, ED-3, ED-4, ED-5, PD-1A, and PD-1B. Accounting Standards Update No. 2016-02: Leases (Topic 842) Update 2016–02 (Section A, Section B & Section C), issued in February of 2016, alters the way lessees account for leases. Under current GAAP, leases are classified as either operating or capital. Operating leases are treated like rentals, with lease payments being expensed as incurred and no lease liability being recognized at the inception of the lease. Capital leases occur when the lessee essentially buys an asset and borrows money through a lease to pay for the asset. For a capital lease, the lessee records an asset and lease liability for the present value of the lease payments at the inception of the lease. Under the ASU, lessees classify leases as either operating or finance lease. Finance leases are those previously called capital leases. For both types of leases, the lessee records a “right-of-use asset” and a lease liability for the present value of lease payments at the inception of the lease. Thus, the ASU has the effect of recognizing all leases in the balance sheet (other than leases that meet the definition of a short-term lease), similar to how we account for capital leases today. The way we amortize the lease over the lease period differs between an operating and finance lease, but we leave those issues for the intermediate accounting course. The effective date of the ASU for public companies is for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For private companies, it is effective for fiscal years beginning after December 15, 2019 and interim periods beginning the following year. Early adoption is permitted. Changes to Spiceland, Thomas, and Herrmann 4e: The ASU modifies the discussion in Chapter 9 (Long-Term Liabilities) on pages 416-418 in several ways:
The ASU requires changes in end-of-chapter material to account for (1) the change in terminology from capital lease to finance lease and (2) recognition of lease liability (and “right-of-use” assets) at the inception of an operating lease. This affects Self-Study Question #2, Review Question #4, E9-3, P9-2A, and P9-2B. |
FASB Update Leases (080616)
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