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Journal Entry — Revenue — Boards Sweep Up a Few Issues

Published on: May 24, 2013

At their meetings this week, the FASB and IASB reached tentative decisions on two sweep issues related to their revenue project: (1) transfers of assets that are not an output of an entity’s ordinary activities (FASB only) and (2) application of the revenue model to credit card reward programs (IASB and FASB joint decision).

Transfers of Assets That Are Not an Output of an Entity’s Ordinary Activities (FASB Only)

The FASB tentatively decided that an entity should apply the proposed model’s recognition and measurement criteria (including the constraint guidance) to transfers or sales to noncustomers of nonfinancial assets (such as property or equipment) held either directly by the entity or within a subsidiary of the entity that does not meet the definition of a business. However, an entity would continue to apply the derecognition guidance in ASC 810-10-401 when transfers or sales are not “in-substance assets” and the nonfinancial assets are held within a subsidiary that meets the definition of a business. Although the FASB continues to support the removal of ASC 360-20 (formerly FASB Statement 662), the Board did not address partial sales of nonfinancial assets3 or define the term “in-substance asset.”4

Application of the Revenue Model to Credit Card Reward Programs (IASB and FASB Joint Decision)

The boards tentatively agreed that the proposed revenue model contains sufficient principles for evaluating and determining the proper accounting for various types of credit card programs and tentatively decided not to provide additional guidance or examples on this topic. However, to avoid narrow interpretation of the proposed standard’s example related to customer loyalty programs (Example 24 in the November 2011 exposure draft), the boards tentatively agreed to clarify that, under the proposed model, entities should evaluate all aspects of a contract containing elements other than a lending.

[1]    For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”

[2]    FASB Statement No. 66, Accounting for Sales of Real Estate.

[3]    Partial sales of an in-substance asset are discussed in ASC 360-20 under current GAAP.

[4]    The term “in-substance asset” is currently defined in ASC 360-20, which will be removed.

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