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The amendments to the nonfinancial asset guidance contained in ASC 610-20 are effective at the same time a reporting entity adopts the revenue guidance in ASC 606.
Reporting entities may transition to ASC 610-20 using either of the following methods:
•  The full retrospective approach (i.e., applied retrospectively to all prior periods presented)
•  The modified retrospective approach (i.e., applied retrospectively by recording the cumulative effect of the change at the beginning of the period of adoption), regardless of the transition approach elected under ASC 606
Additionally, for reporting entities that adopt ASC 610-20 (and related amendments in ASU 2017-05) under the full retrospective method, the new guidance provides the following practical expedients (see ASC 606-10-65-1) in an effort to ease the burden of transition:
•   Entities do not need to estimate variable consideration at the time of sale for completed contracts and can use the actual transaction price
•   Entities do not need to retrospectively restate for contracts modified before the earliest period presented at adoption
•   If upon adoption of ASC 610-20, an entity concludes that a transaction previously recorded as the disposal of a business does not qualify as a business under ASU 2017-01, the entity will not need to reinstate amounts previously allocated to goodwill associated with the disposed business
Reporting entities may elect to apply practical expedients for the adoption of ASC 610-20 that differ from the elections made for the adoption of ASC 606. Under the full retrospective transition method, ASC 610-20 will apply to all contracts. However, if modified retrospective transition is chosen, a reporting entity can make an election to not apply the guidance to “completed contracts.” The guidance defines a completed contract as a contact in which all or “substantially all” of the revenue from the contract was recognized under accounting guidance prior to the adoption of ASC 606 and ASC 610-20.
Reporting entities may not have a cumulative effect adjustment upon adopting ASC 610-20 as contracts within its scope are oftentimes completed upon execution. However, contracts are not “completed,” for example, when a significant amount of variable consideration can be received after ASC 610-20 is adopted. If a contract is not completed, entities should estimate the transaction price, including variable consideration, and recognize the sale in accordance with guidance for contracts with customers in ASC 606. See RR 4.3 and RR 5.5 for details.
Another scenario to consider is when the seller has a call option to repurchase a nonfinancial asset that has not been exercised/terminated at the date of adoption, as the asset may not be derecognized prior to the date of adoption. In such cases, an entity should consider the guidance in PPE 6.2.4.4 for nonfinancial assets subject to call or repurchase options.
In partial sale transactions, the retention of an equity method investment does not suggest that the contract is “not completed” even though the gain would have been limited under the guidance prior to the adoption of ASC 610-20. If the partial sale occurred in 2017, assuming a January 1, 2018 adoption date and using the modified retrospective transition method, the retained interest will not change and no cumulative effect adjustment will be recorded. If the full retrospective transition method is utilized, the new guidance would be followed for the partial sale transaction.
A reporting entity should consider the ongoing impact of choosing either transition method. One example of a future consequence of the transition method is that depreciation and amortization charges are likely to increase under the full retrospective method. In addition, a partial sale usually results in a higher equity method investment balance upon adoption under the full retrospective transition method as the retained interest is recorded at fair value, which may increase the potential for impairment.
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