Wiley GAAP 2018, 16th Edition

29ASC 405 Liabilities

1. Perspective and Issues
   1. Technical Alert
      1. ASU 2016-04
      2. Guidance
      3. Implementation
   2. Subtopics
   3. Scope and Scope Exceptions
      1. ASC 405
      2. ASC 405-20
      3. ASC 405-30
      4. ASC 405-40
   4. Overview
2. Definitions of Terms
3. Concepts, Rules, and Examples
   1. ASC 405-10, Overall
   2. ASC 405-20, Extinguishments of Liabilities
      1. Example of Accounting for the Extinguishment of Debt
   3. ASC 405-30, Insurance—Related Assessments
   4. 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 ...