FASB to Clarify Partial Sales Treatment; Includes Real Estate

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By Denise Lugo

June 6 — The Financial Accounting Standards Board proposed clarifications for how companies should record gains and losses from partial sales of nonfinancial assets, such as real estate.

Companies are uncertain how to account for those types of transactions because they're not specifically addressed under forthcoming revenue rules, Revenue from Contracts with Customers (Topic 606), FASB said in its June 6 proposal. The revenue rules take effect in 2018.

FASB June 6 proposed that a company would recognize a gain from partial sales of nonfinancial assets only if the legal entity isn't consolidated by the seller and other criteria in revenue accounting are met.

See if Still Consolidated

Companies would look at the entity to see if it is still consolidated, according to the main tenets of the proposal. If it is still consolidated, no gain would be recognized.

If, however, it was deconsolidated, then companies would have to look at the new revenue rules to determine whether or not that partial interest had transferred.

A company would measure retained interest at book value of the nonfinancial asset that has been recognized, FASB proposed. The issue addresses when the customer has obtained control of the asset, including the unit of accounting and how to account for retained interest.

The proposed guidance would have the same effective date as the new revenue rules, said FASB. However companies can elect to apply different transition methods to transactions with customers and noncustomers.

Companies have until Aug. 5 to submit comments on the proposal, said FASB. It is titled: Other Income—Gains and Losses form the Derecognition of Nonfinancial Assets (Subtopic 610-20), Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of NonFinancial Assets.

To contact the reporter on this story: Denise Lugo in Norwalk, Conn., at dlugo@bna.com

To contact the editor responsible for this story: Steven Marcy at smarcy@bna.com

For a copy of the proposal go to: http://src.bna.com/fDn.

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