![]() Prior experience with similar agreements may also provide information to help allocate costs between routine and major maintenance services.Financial reporting and time saving tips for startups Nonroutine maintenance, including payments under contracts for FOD or other out of scope work, would also be expensed as it is incurred.Īn LTSA often includes multiple price components, such as a fixed monthly fee, variable monthly fees, and milestone payments based on service hours of the asset being maintained. These components typically cover major service events and monthly routine services to monitor and manage the performance of the covered equipment. The service provider may itemize the costs into major categories, such as capital parts, consumable parts, field services, component repair services, and other contractual services. In some circumstances, it may be difficult to determine the cost of the different services and the appropriate allocation between routine and major maintenance. To properly account for maintenance services, a reporting entity should implement policies to understand how the payments relate to the products and services provided under the LTSA. This information should be used to classify the costs between routine and major maintenance activities. Such support could include prior costs for similar maintenance activities, documentation from a maintenance provider or other third parties, or both. The amount of maintenance expense recorded would need to be supported by evidential matter. If the cost per event is not specifically determined from the contract, the airline would record maintenance expense based on the best estimate of the cost of the underlying maintenance services. ![]() Any nonrefundable amounts that are not probable of being used to fund future maintenance activities would be recognized as expense. When the underlying maintenance event occurs, it would be accounted for as maintenance expense or capitalized in accordance with the airline's maintenance accounting policy. If a contract does not meet the risk transfer criteria, FinREC believes the payments made under the contract should be recorded as a deposit or prepaid expense to the extent recoverable through future maintenance activities. When the expenditure is incurred to replace the lining, it will be capitalized as a component of the cost of the furnace and will be separately depreciated over the period until it is next replaced (i.e., five years). The cost and depreciation attributed to the original blast furnace lining should be removed once the cost of the new blast furnace lining has been capitalized, because the original asset would be disposed of when replaced with the new lining. For example, it could avoid the obligation by decommissioning the blast furnace. Although no provision can be built up over the five years before the expenditure is incurred, the blast furnace lining should be segregated as a separate component upon acquisition and depreciated over a five year period, rather than over the useful life of the furnace itself. No provision can be made for replacement of the furnace lining before the reporting entity incurs the expenditure until that time, the reporting entity has no present obligation because it does not have to replace the lining. To demonstrate the built-in overhaul method, consider a blast furnace with a lining that needs to be replaced every five years. Transfers and servicing of financial assets Revenue from contracts with customers (ASC 606) Loans and investments (post ASU 2016-13 and ASC 326) Investments in debt and equity securities (pre ASU 2016-13) Insurance contracts for insurance entities (pre ASU 2018-12) ![]() Insurance contracts for insurance entities (post ASU 2018-12) ![]() IFRS and US GAAP: Similarities and differences Business combinations and noncontrolling interestsĮquity method investments and joint ventures
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