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The allocation of an expense associated with a long-lived asset to the carve-out business will depend on:
  • whether the asset has a finite life or an indefinite-life, and
  • the proportional usage of the asset between the carve-out business and the parent.
There can be situations when an asset has not been reflected on the carve-out balance sheet, but an expense needs to be recorded related to the use of that asset. Conversely, there can be situations when an asset has been reflected on the carve-out balance sheet, but an expense is offset by an imputed charge to the parent to reflect the cost of its proportional usage.

5.4.1 Shared indefinite-lived intangible assets

If the carve-out business does not reflect an indefinite-lived intangible asset on its balance sheet but benefits from use of the intangible asset, a question arises as to whether the carve-out business should record an expense. We believe that if the carve-out entity has not historically been charged for use of the parent’s indefinite-lived intangible asset, an expense would not be reflected in the carve-out financial statements because the parent is not amortizing the asset and therefore there is no cost to allocate.

5.4.2 Shared long-lived tangible and finite-lived intangible assets

In a divestiture, there may be instances when a long-lived asset was partially used by the carve-out business; however, that long-lived tangible asset was used more by the parent entity or is not being transferred in the transaction and has not been recorded in the carve-out financial statements. To the extent a carve-out business uses a portion of a long-lived asset that is recognized by the parent, expense would be recorded in the carve-out financial statements based on a systematic and rational allocation (e.g., proportional usage).
When the long-lived asset is reflected on the balance sheet, the depreciation expense associated with the asset is also recognized. If the parent entity uses a portion of the long-lived asset recognized by the carve-out business, depreciation expense is generally offset by an imputed charge to the parent to reflect the cost of its proportional usage.
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