While an accounting standards update will change current accounting practice for real estate entities, these amendments will reduce complexity for all entities that sell or transfer nonfinancial assets by decreasing the number of derecognition models. Changes include:
- Specific scope exclusion in Accounting Standards Codification (ASC) 610-20 for businesses and nonprofit activities. Entities would no longer have to consider if a business also is an in substance nonfinancial asset. (Derecognition of businesses and nonprofit activities would generally be accounted for under ASC 810.)
- Codified definition of an “in substance nonfinancial asset” will improve consistency in applying the appropriate guidance.
- Updating ASC 845, Nonmonetary Transactions, to exclude exchanges of a nonfinancial asset for a noncontrolling ownership interest. Those transactions will now be accounted for under ASC 610-20.
- An equity method investment would no longer meet the definition of an in substance nonfinancial asset, eliminating the need for a scope exception for transfers of equity method investments in real estate entities deemed to be in substance nonfinancial assets in ASC 860, Transfers and Servicing.
- Contributions of nonfinancial assets to joint ventures are covered by ASC 610-20.