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Amendments to Subtopic 323-740
Publication date: 18 Dec 2019
us FASB ASU 2019-12
16. Amend paragraph 323-740-55-8, with a link to transition paragraph 740-10-65-8, as follows:
Investments—Equity Method and Joint Ventures—Income Taxes
Implementation Guidance and Illustrations
Qualified Affordable Housing Project Investments
> Illustrations
> > Example 1: Application of Accounting Guidance to a Limited Partnership Investment in a Qualified Affordable Housing Project
323-740-55-2 This Example illustrates the application of the cost, equity, and proportional amortization methods of accounting for a limited liability investment in a qualified affordable housing project.
323-740-55-3 The following are the terms for this Example.
Date of investment
| January 1, 20X1
| |
Purchase Price of Investment
| $ 100,000
|
323-740-55-4 This Example has the following assumptions:
- All cash flows (except initial investment) occur at the end of each year.
- Depreciation expense is computed, for book and tax purposes, using the straight-line method with a 27.5 year life (the same method is used for simplicity).
- The investor made a $100,000 investment for a 5 percent limited partnership interest in the project at the beginning of the first year of eligibility for the tax credit.
- The partnership finances the project cost of $4,000,000 with 50 percent equity and 50 percent debt.
- The annual tax credit allocation (equal to 4 percent of the project’s original cost) will be received for a period of 10 years.
- The investor’s tax rate is 40 percent.
- The project will operate with break-even pretax cash flows including debt service during the first 15 years of operations.
- The project’s taxable loss will be equal to depreciation expense. The cumulative book loss (and thus the cumulative depreciation expense) recognized by the investor is limited to the $100,000 investment.
- Subparagraph superseded by Accounting Standards Update No. 2014-01.
- It is assumed that all requirements are met to retain allocable tax credits so there will be no recapture of tax credits.
- The investor expects that the estimated residual value of the investment will be zero.
- All of the conditions described in paragraph 323-740-25-1 are met to qualify the investment for the use of the proportional amortization method.
323-740-55-8 A detailed analysis of the equity method follows.
Copyright #year# by Financial Accounting Foundation, Norwalk, Connecticut.
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