Wiley GAAP 2020

27ASC 405 LIABILITIES

• Perspective and Issues
  • Technical Alert
    • ASU 2016-04
    • Guidance
    • Implementation
  • Subtopics
  • Scope and Scope Exceptions
    • ASC 405-20
    • ASC 405-30
    • ASC 405-40
  • Overview
• Definitions of Terms
• Concepts, Rules, and Examples
  • ASC 405-10, Overall
  • ASC 405-20, Extinguishments of Liabilities
    • Example of Accounting for the Extinguishment of Debt
  • ASC 405-30, Insurance-Related Assessments
  • ASC 405-40, Obligations Resulting from Joint and Several Liabilities

PERSPECTIVE AND ISSUES

Technical Alert

ASU 2016-04.

In March 2016, the FASB issued ASU 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products. The ASU is a consensus of the EITF.

Guidance.

ASC 2016-04 was created to align the guidance in ASC 405-20 for financial liabilities with the guidance for nonfinancial liabilities in ASU 2014-09, Revenue Recognition, and codified in ASC 606. To do so, the guidance in ASU 2016-04 creates an exception to the requirements of ASC 405-20. It requires issuers to derecognize financial liabilities related to breakage amounts in either of the following two ways:

• If the entity expects to have a related breakage amount, derecognize the liability:
  • In amounts proportionate to the pattern of rights expected to be exercised by the holder of the product
  • To the extent that a significant reversal of the breakage amount will not subsequently occur, or

• If the entity does not expect to be entitled to a breakage amount, the entity derecognizes the liability when the ...