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Question 1: Do you guys think that “that is in substance the rescission of a prior business combination ” in the below paragraph refers just to “in a plan” or to “in a spinoff or other form of reorganization or liquidation or in a plan”. My opinion is that it refers to all of the transactions that the paragraph listed.
Question 2: In a property dividend (e.g. distributing an equity investment) gain/loss is recognized, while in a spinoff gain/loss isn’t recognized.
Is the basic logic behind having property dividends recorded at fair value that the shareholders are realizing their investment in the company by getting a distribution. Therefore, the company should record a gain/loss to reflect the company’s performance so that readers of the financial statement can evaluate what kind of return the company is providing to their investors.
Meanwhile, in a spinoff or reorganization, the shareholders of the companies haven’t really realized anything. They didn’t pull out any cash or value outside of the company. It’s just been split between two companies on paper. Therefore, there shouldn’t be any gain or loss recorded by either company.
ASC: 845-10-30-10:
Accounting for the distribution of nonmonetary assets to owners of an entity in a spinoff or other form of reorganization or liquidation or in a plan that is in substance the rescission of a prior business combination shall be based on the recorded amount (after reduction, if appropriate, for an indicated impairment of value) (see paragraph 360-10-40-4 ) of the nonmonetary assets distributed. Subtopic 505-60 provides additional guidance on the distribution of nonmonetary assets that constitute a business to owners of an entity in transactions commonly referred to as spinoffs. A pro rata distribution to owners of an entity of shares of a subsidiary or other investee entity that has been or is being consolidated or that has been or is being accounted for under the equity method is to be considered to be equivalent to a spinoff. Other nonreciprocal transfers of nonmonetary assets to owners shall be accounted for at fair value if the fair value of the nonmonetary asset distributed is objectively measurable and would be clearly realizable to the distributing entity in an outright sale at or near the time of the distribution.
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