41
ASC 610 Other Income
Perspective and Issues
Effective Date
Topic ASC 610 was created by ASU 2014-09, Revenue from Contracts with Customers, to offer guidance for revenue generated by transactions outside the scope of ASC 606, that is, from transactions other than with customers in the ordinary course of business. ASC 610 is effective upon implementation of ASU 2014-09.
Technical Alert
In February 2017 the FASB issued ASU 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.
Effective Date
The amendments to the nonfinancial asset guidance are effective at the same time an entity adopts the new revenue guidance. See the chapter on ASC 606 for the effective date details.
Early adoption is permitted for annual periods beginning after December 15, 2017 for public entities and after December 15, 2018 for all other entities.
Transition
The transition method does not have to be the same as that used for transition to ASC 606. Entities have the option of using either
- the full retrospective approach (i.e., applied to prior periods currently being presented) or
- the modified retrospective approach.
Guidance
The ASU was issued to clarify that, unless other specific guidance applies, ASC 610-20 applies to the derecognition of
- nonfinancial assets and
- in substance nonfinancial assets.
It does not apply to the derecognition of
- businesses,
- nonprofit activities, or
- financial assets (including equity method investments), or to revenue transactions (contracts with customers).
The ASU also
- Clarifies that an in substance nonfinancial asset is an asset or group of assets for which substantially all of the fair value consists of nonfinancial assets and the group or subsidiary is not a business. This should reduce diversity in practice.
- Provides that transfers of nonfinancial assets to another entity in exchange for a noncontrolling ownership interest in that entity should be accounted for under ASC 610-20, thus, removing specific guidance on such partial exchanges from ASC 845.
- Eliminates the guidance specific to real estate sales in ASC 360-20, making sales and partial sales of real estate assets subject to the same derecognition guidance as all other nonfinancial assets. Eliminating these differences should simplify application of GAAP.
- Effects accounting for partial sales of nonfinancial assets (including in substance real estate). Under the amended guidance, if an entity transfers its controlling interest in a nonfinancial asset, but retains a noncontrolling ownership interest, the entity measures the retained interest at fair value. This is consistent with the guidance on the sale of controlling interests in businesses and will result in full gain/loss recognition upon the sale of a controlling interest in a nonfinancial asset. Extant guidance generally prohibits gain recognition on the retained interest.
Subtopic
ASC 610, Other Income, contains three subtopics:
- ASC 610-10, Overall, which defines the scope of guidance on revenue recognized that is not in the scope of:
- ASC 606, that is, it is not from a contract with a customer,
- Other topics, such as ASC 840 or 842 on leases and ASC 944 on insurance, or
- Other revenue or income guidance.
- ASC 610-20, Gains and Losses from the Dercognition of Nonfinancial Assets, applies to derecognition of nonfinancial assets with the scope of ASC 350 on intangibles and ASC 360 on property, plant, and equipment that is not in the scope of ASC 606. Nonfinancial assets are, for example, real estate, intangible assets, property, plant, and equipment.
- ASC 610-30, Gains and Losses on Involuntary Conversions, applies to events and transactions in which nonmonetary assets are involuntarily converted to monetary assets that are then reinvested to other nonmonetary assets.
Scope and Scope Exceptions
ASC 610-10, Overall
ASC 610-10 applies to all entities. (ASC 610-10-15-2)
ASC 610-20, Gains and Losses from the Derecognition of Financial Assets
ASC 610-20 applies to all entities and the gain or loss recognized upon
- The derecognition of a nonfinancial asset in the scope of ASC 350 or 360, unless the entity sells or transfers the nonfinancial asset in a contract with a customer
- The transfer of financial assets that are in substance nonfinancial assets within the scope of ASC 350, Intangibles—Goodwill and Other, or 360, Property, Plant, and Equipment.
(ASC 610-20-15-2)
The term “in substance nonfinancial asset” is a concept that is not defined in the Codification. The Codification does give the example of a legal entity that holds only nonfinancial assets, for example, real estate.
The guidance does not apply to the derecognition of:
- A nonfinancial asset, including an in substance nonfinancial asset, in a contract with a customer
- A subsidiary or group of assets that constitutes a business or nonprofit activity, except for an in substance nonfinancial asset.
It also does not apply to:
- Real estate sales-leaseback transactions which are covered under ASC 360-20, 840-40, and 842 (the last upon implementation of ASU 2016-02),
- Conveyance of oil and gas mineral rights under ASC 932-360, and
- Transfer of nonfinancial assets to another entity in exchange for a noncontrolling ownership interest in that entity under ASC 845-10-30.
(ASC 610-20-15-3)
ASC 610-30, Gains and Losses on Involuntary Conversions
ASC 610-30 applies to all entities and to events and transactions in which nonmonetary assets are involuntarily converted to monetary assets that are then reinvested in other nonmonetary assets.
Definitions of Terms
Source: ASC 610, Glossaries. See Appendix A, Definitions of Terms, for terms relevant to this chapter: Business, Contract, Customer, Disposal Group, Nonprofit Activity, Performance Obligation, Revenue, and Transaction Price.
Concepts, Rules, and Examples
ASC 610-10, Overall
This subtopic establishes the pervasive scope of ASC 610 and provides a glossary. It does not include measurement, presentation, or other guidance.
ASC 610-20, Gains and Losses from the Derecognition of Financial Assets
ASC 610-20 does not create presentation or measurement guidance, but rather requires entities to apply the principles in ASC 606, Revenue from Contracts with Customers, and points to that guidance. Thus, for calculation of the gain or loss upon derecognition of a nonfinancial asset, entities should look to the guidance in ASC 606. This subtopic covers the following transactions if not in the entity's ordinary course of business:
- Sales of intangible assets within the scope of ASC 350 and
- Property, plant, and equipment within the scope of ASC 360.
Such sales may occur with customers and if they are in the ordinary course of business, they fall under the guidance in ASC 606.
This subtopic also requires entities to apply ASC 606 to the transfer of a subsidiary or a group of assets that is, in substance, a nonfinancial asset within the scope of ASC 350 or 360. However, the transfer of a group of assets that is a business and does not also quality as an in substance nonfinancial asset continues to be accounted for under existing guidance, such as ASC 810, Consolidation.
ASC 610-30, Gains and Losses on Involuntary Conversions
This subtopic applies to gains and losses on involuntary conversions. It provides guidance when nonmonetary assets are destroyed, stolen, condemned, or otherwise lost and the entity receives monetary assets such as insurance proceeds. The guidance makes clear that this type of transaction is a monetary transaction that results in a gain or loss.
Recognition, Measurement, and Presentation
The cost of nonmonetary assets acquired is measured by the consideration paid, not affected by previous transactions. (ASC 610-30-30-1) The gain or loss recognized is classified under the provisions in ASC 225-20. (ASC 610-30-45-1)
If a nonmonetary asset is destroyed or damaged in one period and the amount of monetary assets to be received will not be determinable until a later period, gain or loss is recognized per the guidance in ASC 450. (ASC 610-30-25-4)