8.1 Overview
This chapter discusses the accounting by a joint venture for
nonmonetary contributions upon formation before the adoption of ASU 2023-05. Therefore,
the Codification references included in this chapter do not show the pending content
(transition guidance in ASC 805-60-65-1) related to the ASU. For information on the
accounting by a joint venture after the adoption of ASU 2023-05, see Chapter 9.
ASC 805-10
15-4 The guidance in the
Business Combinations Topic does not apply to any of the following:
a. The formation of a joint venture . . . .
ASC 845-10
15-4 The
guidance in the Nonmonetary Transactions Topic does not
apply to the following transactions: . . .
b. A transfer of nonmonetary assets solely between
entities or persons under common control, such as
between a parent and its subsidiaries or between two
subsidiaries of the same parent, or between a
corporate joint venture and its owners . . . .
Before the issuance of ASU 2023-05,U.S. GAAP did not address the accounting by legal entities that meet the definition of a joint venture for noncash assets contributed by venturers upon the initial joint venture formation. The EITF evaluated the accounting by joint ventures for businesses received at formation but did not reach a consensus on this issue (Issue 98-4). In addition, ASC 805 and ASC
845 have expressly excluded from their scope the formation of a joint venture and
transfers between joint ventures and their owners, respectively.
In the absence of prescriptive FASB guidance, some joint ventures recognized
contributions of nonmonetary assets upon the venture’s initial formation by using
the venturers’ carrying values (historical cost bases), while other joint ventures
have recognized such contributions at their fair values. To eliminate this diversity
in practice, the FASB included a project on its technical agenda to address the
accounting by a joint venture for the initial contribution of nonmonetary and
monetary assets to the venture. This project culminated in the August 2023 issuance
of ASU 2023-05, which is effective for all joint venture formations with a formation
date on or after January 1, 2025. Early adoption is permitted.
This chapter focuses on the accounting for joint ventures before the adoption of
ASU 2023-05. Until such adoption, practitioners may continue to apply the guidance
discussed in Section
8.2 (specifically, by using venturers’ carrying values [historical
cost bases] in nonmonetary assets that meet the definition of businesses) and in
Section 8.3 on the
accounting by a joint venture for the initial contribution of nonmonetary assets to
the joint venture (specifically, by using venturers’ carrying values [historical
cost bases] in nonmonetary assets that do not meet the definition of a business).
While practitioners are not required to apply the amendments in ASU 2023-05 to joint
ventures formed before January 1, 2025, early adoption of the amendments is
permitted. Chapter 9 of
this Roadmap reflects the amendments in ASU 2023-05 for those that want to apply a
fair value measurement model to a joint venture formation and thus apply ASU
2023-05.