{"id":1004700918,"date":"2024-02-07T04:37:19","date_gmt":"2024-02-07T12:37:19","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004700918"},"modified":"2024-02-07T11:56:35","modified_gmt":"2024-02-07T19:56:35","slug":"preparing-for-new-fasb-guidance-on-jvs","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/preparing-for-new-fasb-guidance-on-jvs\/","title":{"rendered":"What You Should Know About FASB’s New Rules for JVs"},"content":{"rendered":"
\n
\"Kelvin<\/figure><\/div>\n\n\n

The Financial Accounting Standards Board has issued Accounting Standards Update 2023-05,\u00a0Business Combinations\u2014Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement.<\/p>\n\n\n\n

The ASU is intended to reduce diversity by requiring a joint venture to apply a new basis of accounting upon formation and will have key impacts for commercial real estate entities, among others.<\/p>\n\n\n\n

<\/p>\n\n\n\n

Businesses who plan in 2024 to create joint ventures in 2025 should plan ahead for the Jan. 1, 2025, effective date, as joint ventures aren\u2019t limited to their legal entity-formation date.<\/p>\n\n\n\n

Key Provisions of ASU 2023-05<\/h2>\n\n\n\n

Historically there is a lack of authoritative guidance in generally accepted accounting principles that specifies how a joint venture should account for assets contributed and liabilities assumed upon formation, which has resulted in diversity in practice. Without specific guidance, joint ventures may measure net assets at the carrying amounts of the venturer that contributed the net assets, or in certain circumstances, at fair value.<\/p>\n\n\n\n

The amended guidance adds Subtopic 805-60, Business Combinations\u2014Joint Venture Formation<\/em>, <\/a>and requires a joint venture to apply a new basis of accounting upon formation. This means that, at the formation date, a joint venture will recognize and initially measure assets contributed and liabilities assumed at fair value, with exceptions to fair value measurement that are consistent with the business combinations guidance.<\/p>\n\n\n\n

The accounting by an equity method investor for its investment in a joint venture and the accounting by a joint venture for contributions received after its formation isn\u2019t impacted by the amended guidance in ASU 2023-05.<\/p>\n\n\n\n

Definition of a Joint Venture<\/h2>\n\n\n\n

The amended guidance doesn\u2019t change the definition of a joint venture.<\/p>\n\n\n\n

A joint venture is defined in part under the Master Glossary as \u201can entity owned and operated by a small group of businesses (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group.\u201d<\/p>\n\n\n\n

The amended guidance further clarifies that a joint venture is the formation of a new reporting entity\u2014not necessarily the creation of a new legal entity\u2014that consists of contributed assets and liabilities controlled by such reporting entity. There\u2019s no identified accounting acquirer in a joint venture.<\/p>\n\n\n\n

Formation Date<\/h2>\n\n\n\n

The ASU amends the Master Glossary to define the formation date as the date when an entity initially meets the definition of a joint venture. This date may not necessarily be the same as the legal entity formation date.<\/p>\n\n\n\n

If multiple arrangements are accounted for as a single transaction that establishes the formation of a joint venture, the formation date is the measurement date for all arrangements that form part of the single formation transaction.<\/p>\n\n\n\n

Initial Measurement<\/h2>\n\n\n\n

At the formation date, a joint venture is required to apply a new basis of accounting for its identifiable assets and liabilities, and any noncontrolling interest.<\/p>\n\n\n\n

Goodwill is required to be recognized as the excess of the joint venture\u2019s total net assets as compared to the identifiable net assets at the formation date. The amendments require a joint venture to measure its total net assets as the fair value of the joint venture as a whole, which would equal the fair value of 100 percent of the joint venture\u2019s equity immediately following formation, including any noncontrolling interest in the net assets recognized by the joint venture.<\/p>\n\n\n\n

The FASB expects the likelihood of negative goodwill to be low for a joint venture formation; however, if present at the time of formation, negative goodwill should be recognized as an adjustment to additional paid-in capital or other similar equity account.<\/p>\n\n\n\n

Measurement Period Guidance<\/h2>\n\n\n\n

In accordance with the guidance in Subtopic 805-10, Business Combinations\u2014Overall<\/em>, an acquirer in a business combination should report provisional amounts in its financial statements when the initial accounting is incomplete as of the end of the reporting period in which the business combination occurred.<\/p>\n\n\n\n

During the measurement period, the acquirer should adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.<\/p>\n\n\n\n

The measurement period ends when the acquirer receives all necessary information relating to the provisional amounts or learns that more information isn\u2019t obtainable. However, the measurement period cannot exceed one year from the acquisition date.<\/p>\n\n\n\n

The amendments in ASU 2023-05 permit a joint venture to apply the above measurement period guidance in Subtopic 805-10 if the initial accounting for a joint venture formation is incomplete by the end of the reporting period in which the formation occurs.<\/p>\n\n\n\n

Disclosure<\/h2>\n\n\n\n

The amended guidance requires a joint venture to provide relevant disclosures that enable the users of its financial statements to understand the nature and financial effect of the joint venture formation in the period in which the formation date occurs.<\/p>\n\n\n\n

The following disclosures should be provided in the period of formation:<\/p>\n\n\n\n

    \n
  • Formation date<\/li>\n\n\n\n
  • Description of purpose for which the joint venture was formed<\/li>\n\n\n\n
  • Formation-date fair value of the joint venture as a whole<\/li>\n\n\n\n
  • Description of assets and liabilities recognized by the joint venture at the formation date<\/li>\n\n\n\n
  • Amounts recognized by the joint venture for each major class of assets and liabilities as a result of accounting for its formation\u2014either presented on the face of financial statements or disclosed in the notes to financial statements<\/li>\n\n\n\n
  • A qualitative description of the factors that make up any goodwill recognized<\/li>\n<\/ul>\n\n\n\n

    Additional disclosures are required when the initial accounting for a joint venture formation is incomplete and the joint venture applies the measurement period guidance.<\/p>\n\n\n\n

    Effective Dates<\/h2>\n\n\n\n

    The amendments are effective prospectively for all joint ventures with a formation date on or after January 1, 2025.<\/p>\n\n\n\n

    Early adoption is permitted in any interim or annual period in which financial statements haven\u2019t yet been issued\u2014or made available for issuance\u2014either prospectively or retrospectively.<\/p>\n\n\n\n

    Joint ventures formed prior to Jan. 1, 2025, may elect to apply the amendments retrospectively, if they have sufficient information.<\/p>\n\n\n\n

    Kelvin Tetz, CPA, partner, leads the Moss Adams\u2019 Real Estate Practice and has practiced public accounting since 1998. <\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

    Kelvin Tetz of Moss Adams on navigating standards that take effect in January 2025.<\/p>\n","protected":false},"author":3121,"featured_media":1004538553,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21684],"tags":[51609],"class_list":["post-1004700918","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-viewpoint","tag-moss-adams"],"acf":[],"yoast_head":"\nWhat You Should Know About FASB's New Rules for JVs - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/preparing-for-new-fasb-guidance-on-jvs\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What You Should Know About FASB's New Rules for JVs\" \/>\n<meta property=\"og:description\" content=\"Kelvin Tetz of Moss Adams on navigating standards that take effect in January 2025.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/preparing-for-new-fasb-guidance-on-jvs\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2024-02-07T12:37:19+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-02-07T19:56:35+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2021\/06\/photo-Kelvin-Tetz-Moss-Adams-headshot.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"800\" \/>\n\t<meta property=\"og:image:height\" content=\"620\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Kelvin Tetz\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/preparing-for-new-fasb-guidance-on-jvs\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/preparing-for-new-fasb-guidance-on-jvs\/\",\"name\":\"What You Should Know About FASB's New Rules for JVs - 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