FASB issues ASU for joint venture formations

The FASB has addressed current diversity in practice by specifying how net assets contributed to a joint venture are accounted for on the joint venture’s formation.”

Applicability

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

Relevant dates

Key impacts

The ASU requires 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 ASU allows existing JVs to apply the guidance retrospectively if they have sufficient information.  

Report contents

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

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