Question

Identify the ASC reference (Down to the paragraph level of detail) that you would look to for guidance on each issue.

Guidance on whether equity spinoff transaction guidance in the Codification applies to nonpublic entities.

Criteria for determining whether a lease should be classified as a finance lease or an operating lease.

Criteria for determining whether information about an operating segment should be reported separately (i.e., as a reportable segment) in the notes to a company's financial statements.

SEC guidance describing required disclosures in the event of a LIFO liquidation, an inventory concept.

Answer 1

The ASC reference guiding the issues described the question and its interpretation is as follows:

1. Guidance on whether equity spinoff transaction guidance in the Codification applies to nonpublic entities:

An equity spinoff transaction is covered in ASC 505-60 Equity - Spinoffs and Reverse Spinoffs. ASC 505-60 provides guidance on distribution of non monetary assets in spin off transaction.

Guidance in ASC 505 generally applies to all entities unless more specific guidance is provided in other topics (ASC 505-10-15-1) Specific exemptions follow:

ASC 505-60 does not apply to non monetary assets that do not constitute a business (505-60-15-3)

In view of above paragraph references, guidance on equity spinoff transaction guidance in the Codification applies to nonpublic entities.

2. Criteria for determining whether a lease should be classified as a finance lease or an operating lease

Paragraph 2 of ASC 842-­10-­25 states, in part: A lessee shall classify a lease as a finance lease and a lessor shall classify a lease as a sales ­type lease when the lease meets any of the following criteria:

a. The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.

b. The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

c. The lease term is for the major part of the remaining economic life of the underlying asset. However, if the commencement date falls at or near the end of the economic life of the underlying asset, this criterion shall not be used for purposes of classifying the lease.

d. The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments in accordance with paragraph 842-­10-­30-­5(f) equals or exceeds substantially all of the fair value of the underlying asset.

e. The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.

If none of the criteria are met, a lessee classifies the lease as an operating lease.

3. Criteria for determining whether information about an operating segment should be reported separately (i.e., as a reportable segment) in the notes to a company's financial statements.

ASC 280-10-50 covers segment reporting:

A public entity shall report separately information about each operating segment that meets both of the following criteria:

a. Has been identified in accordance with paragraphs 280-10-50-1 and 280-10-50-3 through 50-9 or results from aggregating two or more of those segments in accordance with the following paragraph

b. Exceeds the quantitative thresholds in paragraph 280-10-50-12.

4. SEC guidance describing required disclosures in the event of a LIFO liquidation, an inventory concept.

SEC Regulation S-X Rule 5-02.6 and SEC Regulation S-K cover the required disclosures in the event of a LIFO liquidation, an inventory concept

(1) to provide narrative explanation of a company’s financial statements that enables investors to see the company through the eyes of management,

(2) to improve overall financial disclosure and provide the context within which financial statements should be analyzed, and

(3) to provide information about the quality and potential variability (emphasis added) of a company’s earnings and cash flows so that investors can ascertain the likelihood that past performance is indicative of future performance.