4.5 Other Nonreciprocal Transfers Other Than Spin-Offs
While other nonreciprocal transfers of long-lived assets (e.g.,
split-offs, dividends-in-kind, common-control transfers, or donations) are not
specifically addressed in U.S. GAAP, we believe that such transfers are also
disposals other than by sale, regardless of whether they are measured at historical
cost or fair value in the transferring entity’s books. Thus, we believe that, by
analogy to the guidance in ASC 845-10-30-10, the assets being distributed in a
nonreciprocal exchange should remain classified as held and used until the
distribution occurs.
4.5.1 Common-Control Transactions
As discussed in Appendix B.4.3 of Deloitte’s Roadmap
Business
Combinations, the transferring entity typically accounts
for the transfer of assets in a common-control transaction as a disposition in
accordance with ASC 360-10. We believe that, while not specifically addressed in
the guidance, the net assets to be disposed of in a common-control transaction
should be classified as held and used until they are exchanged or distributed in
the same manner as net assets to be distributed in a spin-off. Therefore, the
net assets to be transferred in a common-control transaction should be
considered disposed of “other than by sale” and should not be classified as held
for sale in the periods before they are exchanged or distributed, even if the
transferring entity will receive consideration as part of the exchange.
ASC 360-10-40-4 requires that a spinnor recognize an impairment
loss on the date on which long-lived assets are distributed in a spin-off if the
carrying amount of the assets (disposal group) exceeds their fair value. While a
common-control transaction is accounted for as a disposal other than by sale in
the same manner as a spin-off transaction, we do not believe that the
transferring entity is required to recognize an impairment loss if the carrying
amount of the assets to be distributed in a common-control transaction exceeds
their fair value. Rather, we believe that the FASB intended for the guidance in
ASC 360-10-40-4 to address the impairment guidance in ASC 845-10-30-10
explicitly referring to a distribution to owners in a spin-off transaction and
that this guidance should not be extended to transfers of assets under common
control of the same parent.
However, ASC 360-10-35-21 requires that an entity test a
long-lived asset (asset group) classified as held and used for impairment
whenever “events or changes in circumstances indicate that its carrying amount
may not be recoverable.” Therefore, the transferring entity should consider
whether the common-control transaction indicates that the long-lived assets
(asset group) to be transferred should be tested for impairment under the
held-and-used model before the disposal date. ASC 360-10-40-4 clarifies that
even if the entity intends to distribute assets in a spin-off transaction, the
assets should be tested for recoverability, if necessary, as if they are held
and used, and the estimates of future cash flows used in the recoverability test
should be based on the use of the assets for their remaining useful life,
provided that the disposal transaction will not occur. We believe that the same
approach should be applied to assets to be distributed in a common-control
transaction if the transferring entity determines that a triggering event has
occurred and that the assets should be tested for recoverability before they are
transferred.