FASB Proposed FSP FAS 144-c “Classifying and Accounting for Depreciable Asset as Held-for-Sale When an Equity Method Investment Is Obtained”

October 27, 2006

FEI Summary

On Oct. 26, 2006, the Financial Accounting Standards Board (FASB) released proposed FSP No. FAS 144-c, “Classifying and Accounting for a Depreciable Asset as Held-for-Sale When an Equity Method Investment Is Obtained.”  The proposed FSP states:

n       “An entity shall classify the entire long-lived asset as held-for-sale and cease depreciating the long-lived asset once the long-lived asset meets the held-for-sale criteria even if the entity plans to account for its direct or indirect interest in the long-lived asset under the equity method of accounting. “ [i.e., if the entity retains an equity investment and accounts for it under the equity method, after the long-lived asset is sold].

n       “When the entity obtains an equity method investment, the entity will apply existing literature to determine how to account for its equity method investment.”

n       “This FSP does not change the accounting for investments in joint ventures or equity method investments and whether a new basis of accounting should be applied.”

n       FASB “concluded that depreciating a long-lived asset once the long-lived asset meets the held-for-sale criteria is inconsistent with FAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. As discussed in paragraphs B83 and B84 of FAS 144, FASB concluded that accounting for an asset classified as held-for-sale is a process of valuation rather than allocation, making depreciation inconsistent with the process of valuation.”

The comment deadline on the proposed FSP is December 15.

For summaries of other recent FASB news, see FEI’s FASB News page.

Prepared Oct. 27, 2006 by Edith Orenstein (eorenstein@FinancialExecutives.org), Director, Technical Policy Analysis, Financial Executives International (FEI), This summary does not represent FEI opinion, unless specifically noted above.