05-2 Paragraph 805-60-25-2 requires that a joint venture account for its formation by applying a new basis of accounting. In accounting for the formation of a joint venture, none of the assets and/or businesses contributed to the joint venture are viewed as having survived the combination as independent entities. Rather, the formation is viewed as the transfer of the net assets to a new entity that assumes control over them. The history of that new reporting entity begins with the joint venture formation. A joint venture establishes a new basis of accounting upon formation by applying aspects of the acquisition method for business combinations, with adaptations that are unique to joint ventures as described in this Subtopic. Accounting for a joint venture formation includes the following steps:
- Determining the formation date
- Recognizing and measuring the identifiable assets, the liabilities, and any noncontrolling interest in the net assets recognized by the joint venture
- Recognizing and measuring goodwill, if any, using the fair value of the joint venture as a whole immediately following formation.
25-2 Accounting for joint venture formations as described in this Subtopic requires that a joint venture establish upon formation a new basis of accounting for its assets and liabilities in accordance with Subtopic 805-20 on identifiable assets and liabilities, and any noncontrolling interest. A joint venture shall recognize goodwill, if any, in accordance with paragraph 805-60-25-13. Unlike the acquisition method, accounting for the formation of a joint venture does not include the identification of an acquirer. This Section includes the following requirements:
- Determining the formation date
- Determining whether multiple arrangements should be accounted for as a single formation transaction
- Determining what is part of the joint venture formation
- Accounting for the formation of a joint venture, as
- New basis of accounting
- Private company accounting alternatives
- Measurement period
- Transfers of financial assets.
25-3 The joint venture formation date is the date on which an entity initially meets the definition of a joint venture, which is not necessarily the legal entity formation date. A joint venture’s formation date is the measurement date for the formation transaction. A joint venture shall determine a single formation date and account for its formation as of that date. A joint venture shall consider the pertinent facts and circumstances in identifying its formation date. All contributions received, or that are receivable, as of the formation date, including consideration of the guidance in paragraphs 805-60-25-4 through 25-5 on multiple arrangements that should be accounted for as a single formation transaction, constitute the joint venture formation transaction.
25-4 Multiple arrangements may establish the formation of a joint venture and constitute the joint venture formation transaction. Circumstances sometimes indicate that the multiple arrangements should be accounted for as a single transaction. In determining whether to account for the multiple arrangements as a single transaction that establishes the formation, a joint venture shall consider the terms and conditions of the arrangements and their economic effects. Any of the following may indicate that the joint venture should account for the multiple arrangements as a single transaction that established the formation of the joint venture:
- The multiple arrangements are entered into at the same time or in contemplation of one another.
- The multiple arrangements form a single transaction designed to achieve an overall commercial effect.
- The occurrence of one arrangement is dependent on the occurrence of at least one other arrangement.
- One arrangement considered on its own is not economically justified, but the multiple arrangements are economically justified when considered together.
25-5 If multiple arrangements are accounted for as a single transaction in accordance with paragraph 805-60-25-4, then the formation date shall be the measurement date for all arrangements that form part of the single formation transaction. A joint venture shall recognize identifiable assets and liabilities that are part of that single transaction when they satisfy the recognition criteria described in paragraph 805-60-25-2.