FASB issues ASU for joint venture formations
Defining Issues | August 2023
The ASU requires a JV formation transaction to be measured at fair value.
The FASB has addressed current diversity in practice by specifying how net assets contributed to a joint venture are accounted for on the joint venture’s formation.
Applicability
- All entities involved in newly formed and existing joint ventures.
Relevant dates
Effective date | All joint ventures |
Joint ventures with a formation date on or after | Jan 1, 2025 |
Early adoption allowed in fiscal years beginning after | Yes, in any interim or annual periods for which financial statements have not yet been issued (or made available for issuance) |
Key Impacts:
The ASU requires joint ventures to:
- Recognize a new basis of accounting for contributed net assets as of the formation date.
- Measure the contributed identifiable net assets at fair value on the formation date using the business combination guidance in ASC 805-20 (with certain exceptions) regardless of whether an investor contributes a business.
- Measure the net assets’ fair value based on 100% of the JV’s equity immediately following formation.
- Record goodwill (or an equity adjustment, if negative) for the difference between the fair value of the JV’s equity and its net assets.
- Provide disclosures about the nature and financial effect of the formation transaction.
The ASU allows existing JVs to apply the guidance retrospectively if they have sufficient information.
Report contents
- Source and applicability
- Fast facts, impacts, actions
- Background
- A new basis of accounting
- Disclosures
- Effective dates and transition
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FASB issues ASU
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