30   ASC 440 COMMITMENTS

Perspective and Issues

Subtopics

Scope and Scope Exceptions

Overview

Definitions of Terms

Concepts, Rules, and Examples

Through-Put and Take-or-Pay Contracts

Example of a through-put contract

PERSPECTIVE AND ISSUES

Subtopics

ASC 440, Commitments, contains only one subtopic:

  • ASC 440-10, Overall, which provides general guidance on financial accounting and reporting for certain commitments.

The Subtopic has two Subsections:

  1. General
  2. Unconditional Purchase Obligations.

The General Subsection provides guidance for

  • Unused letters of credit
  • Preferred stock dividends in arrears,
  • Commitments such as those for plant acquisitions, and
  • Obligations to reduce debts, maintain working capital, or restrict dividends.

The Unconditional Purchase Obligation subsection provides guidance for unconditional purchase obligations, such as throughput and take-or-pay contracts.

Scope and Scope Exceptions

ASC 440 applies to all transactions. However, for guidance on product financing arrangements, the preparer should look to ASC 470-40-15.

Overview

All significant contractual commitments must be disclosed in the notes to the financial statements. For example, lease contract provisions, pension obligations, requirements contracts, bond indenture covenants, commitments to purchase or construct new facilities, and employee share-based compensation plans are to be clearly disclosed in the notes.

DEFINITIONS OF TERMS

Source: ASC 440-20

Purchaser's Incremental Borrowing Rate. The rate ...

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