Defining Issues | October 2022

Insight

FASB proposes accounting for joint venture formations

The proposed ASU would require a joint venture formation transaction to be measured at fair value.

Nick Burgmeier

Nick Burgmeier

Partner, Dept. of Professional Practice, KPMG US

+1 212-909-5455

Petre Kotev

Petre Kotev

Senior Manager, Dept. of Professional Practice, KPMG US

+1 212 872-3179

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’s formation.

Applicability

  • All entities involved in newly formed and existing joint ventures.

Relevant dates

  • December 27, 2022 – 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 – with certain exceptions – regardless of whether an investor contributes a business.
  • Measure the net assets’ fair value based on 100% of the JV’s equity immediately following formation.
  • Record goodwill (or an equity adjustment, if negative) for the difference between the fair value of the JV’s 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. 

Report contents

  • Source and applicability
  • Fast facts, impacts, actions
  • Background
  • A new basis of accounting
  • Disclosures
  • Effective dates and transition

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