You would also accrue the estimated fair value of shares at settlement, along with the cash settlement, for the full value of the settlement when it is probable and estimable. Then when the settlement is finalized and the shares are issued, you would debit the accrual and credit equity.
The TSA services should be accounted for at fair value. If the TSA services were performed at below market prices or for free, then a portion of the purchase price should be allocated to the TSA agreement as a prepaid and expensed over the term of the agreement.
There might be incremental expense because the expected term immediately after the modification date will be longer. The expected term immediately before the modification date would be 90 days, and the expected term immediately after would be 1 year. The volatility and risk free rate immediately before and after the modification date would also be different as they are pegged to the expected term.
There are multiple lease components. You would need to allocate the rent to each component on a relative fair value basis and then assess the accounting for each component separately. The building component would likely be an operating lease and the equipment component would likely be a finance lease, so the accounting would be different for each.
There are multiple lease components. You would need to allocate the rent to each component on a relative fair value basis and then assess the accounting for each component separately. The building component would likely be an operating lease and the equipment component would likely be a finance lease, so the accounting would be different for each.
If there are any adjustments to the stock options as a result of the spinoff, then it would be accounted for as a stock modification. Typical adjustments include a change in exercise price, number of stock options, exchanges of stock options or a grant of new stock options in the spinee. It also depends on if there is an antidilution clause in the stock option agreement for equity restructurings. The antidilution clause is meant to equalize the fair value immediately before and after and not result in incremental compensation cost. If there is no antidilution clause, then there will be incremental compensation cost and you should discuss with a valuation specialist.
With the implementation of ASC 842, prepaid rent and deferred rent went away. At the lease commencement date, any prepaid rent is added to the ROU asset. Subsequent to the lease commencement date, any prepaid rent will reduce the lease liability as a cash payment.
Since you have a bargain purchase option, this would be considered a finance lease. If it’s a finance lease, then it’s not a true sale leaseback because you retain control of the furniture and equipment. In other words, the furniture and equipment will stay on your books, and you’ll recognize a financing liability. This is in essence a financing arrangement.
If the customer cannot take possession of the software at any time, then the software is solely being used by the company to provide a service to the customer. It doesn’t sound like the customer is receiving a distinct license in addition to the SaaS. Therefore, the costs of developing the software is not transferred to any customer and should be accounted for under ASC 350-40.
The accounting depends on if the tenant improvements are the Landlord’s improvements or the Company’s. If the tenant improvements belong to the Landlord (they keep it at the end of the lease and use it for other future tenants), then the TI Rent is considered a lease payment used to calculate the lease liability under ASC 842. This is because you are essentially paying them for the right to use the improvements. If the tenant improvements are the Company’s, then you would put them on the books as PP&E and record a liability for the tenant improvement allowance that the Landlord funds. In this scenario, it would essentially be considered a financing.
Usually the effective date will drive the accounting, so if the effective date is after the issuance of your financials, then you wouldn’t reflect the stock split in your balance sheet and EPS. However, you should have a footnote disclosure describing the stock split and have pro forma disclosures of how your equity and EPS would look after the stock split. In your next filing, you would then restate the financials and get rid of the pro forma disclosures.
Basis differences are when there’s a difference between the cost basis of the investee’s assets and their fair value. You would essentially need to allocate the cost to all the net assets through a hypothetical purchase price allocation (similar to business combinations) and compare the cost to the % fair value of the net assets. These basis differences are tracked offline in a workbook and need to be amortized or depreciated and included as part of your share of the earnings related to the investee.
There could potentially be a change in revenue recognition under 606. First you need to determine the performance obligations. Usually design and build contracts for engineering and construction companies are considered one performance obligation due to the interdependence of the components on the design. However, you would need to do an analysis to see if the design is a distinct performance obligation. Some factors that would suggest that it is a distinct performance obligation is if the company has a right to payment once the design is completed, if the company could sell the design separately from the components, and if the customer has the title to the design.
Once you determine the performance obligations, you would recognize revenue for each over time if it meets the 3 criteria in 606 or if not, at a point in time. If you have one performance obligation that is recognized over time, most engineering and construction companies use the cost to cost method (percentage of completion) to recognize revenue. If you have two separate performance obligations (one for design and one for build), you would recognize revenue when control of these is transferred to the customer.
The guidance in ASC 718 addresses the accounting for changes in estimated achievement of performance conditions, so your scenario is within the scope of ASC 718 and not ASC 855 (Subsequent Events). Since only the estimated attribution period is impacted and not the total compensation cost, the remaining unrecognized compensation cost will be recognized prospectively over the revised service period.
Normally for an award with a performance condition, you would accrue when it’s probable. However, certain events like financing, change in control or IPO are not recognized until the transaction is consummated. This is because there are too many factors outside of the Company’s control. ASC 718 gives some guidance around this for equity-related awards, but it can also be applied to cash awards.