Clarifying the Scope of Subtopic 610-20 and Accounting
for Partial Sales of Nonfinancial Assets (Formerly
Clarifying the Definition of a Business Phase 2)

Accounting Standards Update 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


Overview


On February 22, 2017, the FASB issued Accounting Standards Update 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 new guidance clarifies the scope of Subtopic 610-20 and includes guidance on partial sales of nonfinancial assets.

Specifically, the amendments in the Update:
  1. Define the term in substance nonfinancial asset
  2. Exclude all businesses (including real estate businesses) and nonprofit activities from the scope of Subtopic 610-20
  3. Require an entity to derecognize a distinct nonfinancial asset or a distinct in substance nonfinancial asset in a partial sale transaction when it (a) does not have (or ceases to have) a controlling financial interest in the legal entity that holds the asset in accordance with Topic 810, Consolidation, and (b) transfers control of the asset in accordance with Topic 606, Revenue from Contracts with Customers
  4. Require an entity to recognize a full gain or loss in earnings when it meets the criteria to derecognize a distinct nonfinancial asset or a distinct in substance nonfinancial asset
  5. Supersede the guidance in the Exchanges of a Nonfinancial Asset for a Noncontrolling Ownership Interest Subsection within Topic 845, Nonmonetary Transactions
  6. Remove an exception to the financial asset derecognition guidance in Topic 860, Transfers and Servicing, such that transfers of equity method investments generally will be accounted for under Topic 860 even if the underlying assets are nonfinancial assets
  7. Clarify that partial sales transactions within the scope of Subtopic 610-20 include contributions of nonfinancial assets to a joint venture or other noncontrolled investee
  8. Require an entity to recognize a full gain or loss on transfers of nonfinancial assets within the scope of Subtopic 610-20 to equity method investees.

Effective Dates


The amendments in Update 2017-05 are effective at the same time as the amendments in Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). Therefore, public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the amendments in Update 2017-05 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

All other entities should apply the amendments in Update 2017-05 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance earlier as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance earlier as of annual reporting periods beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance.

An entity is required to apply the amendments in Update 2017-05 at the same time that it applies the amendments in Update 2014-09.

What Entities Are Affected by the Amendments in This Update?


The amendments in this Update affect the following:
  1. An entity that enters into a contract to transfer to a noncustomer a nonfinancial asset, a group of nonfinancial assets, or an ownership interest in a consolidated subsidiary that is not a business or nonprofit activity
  2. An entity that historically had transactions within the scope of the real estate-specific derecognition guidance
  3. An entity that contributes nonfinancial assets that are not a business or a nonprofit activity to a joint venture or other noncontrolled investee.

Additional Information

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