For a modification to a syndicated loan facility, you would would apply the debt modification guidance under ASC 470-50 on a creditor by creditor basis. This is because each creditor has loaned a specific amount to the debtor and has its own right to repayment. If a creditor leaves the bank syndicate in connection with a debt modification or exchange, the debtor accounts for the debt previously held by the withdrawing creditor as an extinguishment because the obligation to the withdrawing creditor is paid. The portion of any unamortized debt discount and debt issuance costs on the overall syndicate borrowings are allocated to the withdrawing creditor to determine the net carrying amount of that debt when recognizing the gain or loss on extinguishment. This allocation is based on the ratio of the principal balance of the debt held by that creditor to the overall principal balance held by the syndicate. For continuing creditors, you would need to perform a separate analyses using the borrowing capacity test to determine whether any portion of the unaccreted deferred costs attributable to those creditors should be written off. If the borrowing capacity is greater than or equal to the original capacity, any unamortized deferred costs paid for the original loan would be amortized over the term of the new loan. If the borrowing capacity is less than the original capacity, any unamortized deferred costs would be written off in proportion to the decrease in capacity. Any new costs associated with the amendment would be deferred and amortized over the term of the new loan. If the debt previously held by the withdrawing creditor is refinanced with other existing syndicate lenders, that refinancing is accounted for as a modification or extinguishment, depending on the results of the cash flow test for each of the syndicate lenders. If the debt previously held by the withdrawing creditor is refinanced with a new lender, it is accounted for as a new borrowing.
Subjective acceleration clauses are provisions in a debt agreement that allow the creditor to accelerate repayment under certain conditions that aren’t objectively determineable (i.e. material adverse change clauses, “experiencing financial difficulty” clauses, etc.). If the likelihood of acceleration is probable, then the debt should be classified as a current liability.
If either the old debt or new debt has a prepayment feature, you would perform a separate cash flow analyses for each assuming exercise and nonexercise of the prepayment option. The cash flow assumption that generates the smaller change in cash flows is used to determine if the 10% significance threshold is met.
If collection is not deemed probable, then step 1 of the model is not met, and you do not have a contract under ASC 606. As such, you would not recognize any accounts receivable, revenue, contract assets or contract liabilities. If collectibility is later deemed to be probable, you would start recognizing the contract under ASC 606 and do a cumulative catch-up adjustment.
No- you would carry forward the contract costs under the new contract. You would only write it off if there is an impairment (i.e. due to a decrease in scope/price.)
You would include goodwill in the carrying value of the asset group if the reporting unit is or is part of the asset group (i.e. the asset group is at a higher level than the reporting unit). If the asset group is part of a reporting unit, you wouldn’t include goodwill at the asset group level.
Yes, you can change the date of the test. This would be considered a change in the method of applying an accounting principle that is “preferable.” This change would be accounted for prospectively. The SEC may require a preferability letter unless the change is immaterial and there are transparent disclosures.
An R&D function could potentially qualify as an operating segment even if it doesn’t recognize revenue if there is discrete financial information available and the operating results are reviewed regularly by the CODM. However, functional organizations or cost centers that are support functions or incidental to the business would not be considered operating segments. I would also look at other companies in your industry to see if they view the R&D function as a separate segment.
Yes, if you change your segments, you should restate prior period disclosures to conform to the new segment presentation unless the change is not material. You should have transparent disclosure when your segments change.
No. The acquirer’s transaction costs are not part of the new basis of the acquired entity and therefore should not be pushed down to the acquiree.
An acquiree has an option to apply pushdown accounting in its separate financial statements when an acquirer obtains control of the acquiree (i.e. through an acquisition). An acquiree that elects to apply pushdown accounting will reflect the new basis of accounting established by the acquirer (i.e. FV adjustments) to the individual assets and liabilities of the acquiree.
Since the Company acquired 60% of the outstanding shares, it has a controlling financial interest. Therefore, the Company will consolidate the entity under ASC 810-10 and recognize the assets acquired, liabilities assumed and noncontrolling interest in accordance ASC 805. Subsequent increases or decreases in its ownership interest are accounted for as equity transactions in accordance with ASC 810-10.
For nonemployee equity-classified awards, a grantor recognizes compensation cost for the goods acquired or services received in the same manner as if the company had paid cash for the goods or services. If it’s fully vested at grant date, and there is no specific performance condition required to be met, you would recognize the full fair value at grant date. This assumes the equity award was for past services. However, if they are expected to continue to provide services, and there is evidence that the company will receive a direct benefit from the nonemployees in return for the equity award that is separate from other business relationships between the 2 parties, you would recognize a prepaid compensation asset at grant date and recognize the expense over the period that they are expected to provide services. All the agreements between the company and the nonemployee should be analyzed to determine the relationship between the company and the nonemployee.
This is akin to a clawback feature, which is a protective clause. Clawback features do not affect the classification of an award and are only recognized if and when the contingent event occurs (i.e. when the employee leaves during the vesting window). If the clawback feature is triggered, then the holder must return the shares and a gain should be recognized in the income statement in an amount equal to the lesser of (1) the recognized compensation cost related to the share-based payment that contains the contingent feature or (2) the fair value of the consideration received.
Tranched preferred shares are when the shares are issued with a commitment to issue additional shares at a specific future date or based on milestones. It is also referred to as a “delayed issuance of preferred shares” or a “contingent issuance of preferred shares.” The commitment to issue additional shares should be analyzed to see if it’s freestanding or embedded. Then the accounting for the freestanding instrument or embedded feature should be based on the contractual terms of the preferred share and the future right or obligation.