ASC

ASC 274-10

Overall

274 Personal Financial Statements

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In brief

IntermediatePresentationSubsequent measurementDisclosureFair value

ASC 274-10 governs personal financial statements prepared for an individual, a married couple, or a family. The core rule is that assets are presented at their estimated current values and liabilities at their estimated current amounts on the accrual basis (274-10-25-1; 274-10-35-1), with a provision for estimated income taxes on the difference between those amounts and the related tax bases (274-10-35-15). The required statement is a statement of financial condition ending in net worth; a statement of changes in net worth and comparative statements are optional (274-10-45-4, 45-5).

Key points (7)
  • Assets and liabilities are recognized on the accrual basis and presented at estimated current values/amounts at the statement date, using methods applied consistently from period to period (274-10-25-1, 274-10-35-1, 274-10-35-3).
  • Receivables are presented at the discounted amount expected to be collected, and payables/other liabilities at the discounted amount of cash to be paid using the rate implicit in the transaction (or a lower current settlement amount if the debt can be discharged for less) (274-10-35-4, 274-10-35-12).
  • Marketable securities are valued at quoted market prices (closing price, or within the bid-asked range if not traded that day), with possible adjustments for large blocks, control, or transfer restrictions; life insurance is carried at cash value less policy loans (274-10-35-5 through 35-9).
  • Nonforfeitable rights to receive fixed or determinable amounts not contingent on life expectancy or future service (e.g., vested pension interests, annuities, beneficial interests in trusts) are presented as assets at discounted amounts; mirror criteria apply to noncancellable commitments as liabilities (274-10-35-11, 274-10-35-13, 274-10-55-7).
  • A provision for estimated income taxes is computed as if all assets had been realized and all liabilities liquidated at the statement date, and is presented between liabilities and net worth (274-10-35-15, 274-10-45-12).
  • Assets and liabilities are listed by order of liquidity and maturity without current/noncurrent classification; the net investment in a business entity (not its individual assets and liabilities) is shown in one amount if marketable as a going concern (274-10-45-7, 45-9, 45-11).
  • Required disclosures include the individuals covered, valuation methods and changes therein, joint ownership arrangements, concentrations in the investment portfolio, information about material closely held business investments, life insurance face amounts, and detailed tax information including carryforwards and current value/tax basis differences (274-10-50-2).

For students. Personal financial statements are the rare GAAP context where a full current-value (not historical cost) balance sheet is required, and the hypothetical tax provision sits between liabilities and net worth rather than in liabilities. A common mistake is combining a closely held business's assets and liabilities with personal items instead of showing a single net investment amount, or classifying items as current/noncurrent.

personal financial statementsestimated current valueestimated current amountstatement of financial conditionstatement of changes in net worthnet worthprovision for estimated income taxesclosely held business valuation

Machine-generated study aid for ASC 274-10. Check the source paragraphs below.

274-10-00Status

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274-10-00-1
The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
274-10-50-2AmendedAccounting Standards Update No. 2016-0202/25/2016
274-10-55-11AmendedAccounting Standards Update No. 2015-1006/12/2015
274-10-65-1AddedAccounting Standards Update No. 2015-1006/12/2015

274-10-05Overview and Background

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274-10-05-1
This Subtopic addresses personal financial statements. Personal financial statements are prepared for individuals either to formally organize and plan their financial affairs in general or for specific purposes, such as obtaining of credit, income tax planning, retirement planning, gift and estate planning, or public disclosure of their financial affairs. Users of personal financial statements rely on them in determining whether to grant credit, in assessing the financial activities of individuals, in assessing the financial affairs of public officials and candidates for public office, and for similar purposes.

Basis of Presentation of Personal Financial Statements

274-10-05-2
The primary focus of personal financial statements is a person's assets and liabilities, and the primary users of personal financial statements normally consider estimated current value information to be more relevant for their decisions than historical cost information. Lenders require estimated current value information to assess collateral, and most personal loan applications require estimated current value information. Estimated current values are required for estate, gift, and income tax planning, and estimated current value information about assets is often required in federal and state filings of candidates for public office.
274-10-05-3
This Subtopic provides guidance on how the estimated current values of assets and the estimated current amounts of liabilities are determined and applied in the preparation and presentation of personal financial statements.

274-10-15Scope and Scope Exceptions

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Entities

274-10-15-1
The guidance in this Subtopic applies to the following entities:
  1. a
    All individuals
  2. b
    All groups of related individuals (families).

Other Considerations

274-10-15-2
Generally accepted accounting principles other than those discussed in this Subtopic may apply to personal financial statements. For example, Topic 450 provides guidance on accounting for contingencies and Topic 850 provides guidance on related-party disclosures.

274-10-25Recognition

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The Methods of Presentation

274-10-25-1
Assets and liabilities shall be recognized on the accrual basis of accounting.

274-10-35Subsequent Measurement

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274-10-35-1
Personal financial statements shall present assets at their estimated current values and liabilities at their estimated current amounts at the date of the financial statements.
274-10-35-2
Paragraph 274-10-25-1 states that assets and liabilities shall be recognized on the accrual basis of accounting.
274-10-35-3
The methods used to determine the estimated current values of assets and the estimated current amounts of liabilities shall be followed consistently from period to period unless the facts and circumstances dictate a change to different methods.

Assets

274-10-35-4
Personal financial statements shall present receivables at the discounted amounts of cash the person estimates will be collected, using appropriate interest rates at the date of the financial statements.
274-10-35-5
Marketable securities include both debt and equity securities for which market quotations are available. The estimated current values of such securities are their quoted market prices. The estimated current values of securities traded on securities exchanges are the closing prices of the securities on the date of the financial statements (valuation date) if the securities were traded on that date. If the securities were not traded on that date but published bid and asked prices are available, the estimated current values of the securities shall be within the range of those prices.
274-10-35-6
For securities traded in the over-the-counter market, quotations of bid and asked prices are available from several sources, including the financial press, various quotation publications and financial reporting services, and individual broker-dealers. For those securities, the mean of the bid prices, of the bid and asked prices, or of the prices of a representative selection of broker-dealers quoting the securities may be used as the estimated current values.
274-10-35-7
An investor may hold a large block of the equity securities of an entity. A large block of stock might not be salable at the price at which a small number of shares were recently sold or quoted. Further, a large noncontrolling interest may be difficult to sell despite isolated sales of a small number of shares. However, a controlling interest may be proportionately more valuable than noncontrolling interests that were sold. Consideration of those factors may require adjustments to the price at which the security recently sold. Moreover, restrictions on the transfer of a security may also suggest the need to adjust the recent market price in determining the estimated current value.
274-10-35-8
If published prices of options are unavailable, their estimated current values shall be determined on the basis of the values of the assets subject to option, considering such factors as the exercise prices and length of the option periods.
274-10-35-9
The estimated current value of an investment in life insurance is the cash value of the policy less the amount of any loans against it.
274-10-35-10
Intangible assets shall be presented at the discounted amounts of projected cash receipts and payments arising from the planned use or sale of the assets if both the amounts and timing can be reasonably estimated. For example, a record of receipts under a royalty agreement may provide sufficient information to determine its estimated current value. The cost of a purchased intangible shall be used if no other information is available.
274-10-35-11
Nonforfeitable rights to receive future sums that have all the following characteristics shall be presented as assets at their discounted amounts:
  1. a
    The rights are for fixed or determinable amounts.
  2. b
    The rights are not contingent on the holder's life expectancy or the occurrence of a particular event, such as disability or death.
  3. c
    The rights do not require future performance of service by the holder.
Paragraph 274-10-55-7 identifies nonforfeitable rights that may have the preceding characteristics.

Liabilities

274-10-35-12
Personal financial statements shall present payables and other liabilities at the discounted amounts of cash to be paid. The discount rate shall be the rate implicit in the transaction in which the debt was incurred. If, however, the debtor is able to discharge the debt currently at a lower amount, the debt shall be presented at the lower amount.
274-10-35-13
Noncancellable commitments to pay future sums that have all the following characteristics shall be presented as liabilities at their discounted amounts:
  1. a
    The commitments are for fixed or determinable amounts.
  2. b
    The commitments are not contingent on others' life expectancies or the occurrence of a particular event, such as disability or death.
  3. c
    The commitments do not require future performance of service by others.
Noncancellable commitments that may have the preceding characteristics include fixed amounts of alimony for a definite future period and charitable pledges.
274-10-35-14
The liability for income taxes payable shall include unpaid income taxes for completed tax years and an estimated amount for income taxes accrued for the elapsed portion of the current tax year to the date of the financial statements. That estimate shall be based on the relationship of taxable income earned to date to total estimated taxable income for the year, net of taxes withheld or paid with estimated income tax returns.
274-10-35-15
A provision shall be made for estimated income taxes on the differences between the estimated current values of assets and the estimated current amounts of liabilities and their tax bases, including consideration of negative tax bases of tax shelters, if any. The provision shall be computed as if the estimated current values of all assets had been realized and the estimated current amounts of all liabilities had been liquidated on the statement date, using applicable income tax laws and regulations, considering recapture provisions and available carryovers. For related implementation guidance, see paragraph 274-10-55-1.

274-10-45Other Presentation Matters

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274-10-45-1
Paragraph 274-10-35-1 states that personal financial statements shall present assets at their estimated current values and liabilities at their estimated current amounts at the date of the financial statements.
274-10-45-2
This Subtopic does not prohibit supplemental presentation of historical cost information.

Reporting Entity

274-10-45-3
Personal financial statements may be prepared for any of the following:
  1. a
    An individual
  2. b
    A husband and wife
  3. c
    A family.

Form of Statements

274-10-45-4
Personal financial statements consist of all of the following:
  1. a
    A statement of financial condition. A statement of financial condition is the basic personal financial statement and shall present all of the following:
    1. 1
      Estimated current values of assets
    2. 2
      Estimated current amounts of liabilities
    3. 3
      Estimated income taxes on the differences between the estimated current values of assets and the estimated current amounts of liabilities and their tax bases
    4. 4
      Net worth at a specified date.
  2. b
    A statement of changes in net worth. The presentation of a statement of changes in net worth is optional.A statement of changes in net worth shall present all of the following:
    1. 1
      Major sources of increases in net worth, including any of the following:
      1. i
        Income
      2. ii
        Increases in the estimated current values of assets
      3. iii
        Decreases in the estimated current amounts of liabilities
      4. iv
        Decreases in estimated income taxes on the differences between the estimated current values of assets and the estimated current amounts of liabilities and their tax bases.
    2. 2
      Major sources of decreases in net worth, including any of the following:
      1. i
        Expenses
      2. ii
        Decreases in the estimated current values of assets
      3. iii
        Increases in the estimated current amounts of liabilities
      4. iv
        Increases in estimated income taxes on the differences between the estimated current values of assets and the estimated current amounts of liabilities and their tax bases.
Example 1 (paragraph 274-10-55-8) illustrates financial statements prepared based on the guidance in this Subtopic.
274-10-45-5
The presentation of comparative financial statements of the current period and one or more prior periods may sometimes be desirable. Such a presentation is more informative than the presentation of financial statements for only one period. The presentation of comparative financial statements is optional.

Methods of Presentation

274-10-45-6
Paragraph 274-10-25-1 states that assets and liabilities shall be recognized on the accrual basis of accounting.
274-10-45-7
Assets and liabilities shall be presented by order of liquidity and maturity, without classification as current and noncurrent.
274-10-45-8
If personal financial statements are prepared for one of a group of joint owners of assets, the statements shall include only the person's interest as a beneficial owner, as determined under the property laws of the state having jurisdiction. If property is held in joint tenancy, as community property, or through a similar joint ownership arrangement, the legal status of the separate equities of the parties may not be evident. In that case, the person may require legal advice to determine whether an interest in the property shall be included among the person's assets and, if so, the proper allocation of the equity in the property under the applicable state laws.
274-10-45-9
Business interests that constitute a large part of a person's total assets shall be shown separately from other investments. The estimated current value of an investment in a separate entity, such as a closely held corporation, a partnership, or a sole proprietorship, shall be shown in one amount as an investment if the entity is marketable as a going concern. Assets and liabilities of the separate entity shall not be combined with similar personal items.
274-10-45-10
The estimated current values of assets and the estimated current amounts of liabilities of limited business activities not conducted in a separate business entity, such as an investment in real estate and a related mortgage, shall be presented as separate amounts, particularly if a large portion of the liabilities may be satisfied with funds from sources unrelated to the investment.

Closely Held Businesses

274-10-45-11
The net investment in a business entity (not its assets and liabilities) shall be presented in the statement of financial condition. The net investment shall be presented at its estimated current value at the date of the financial statement.

Certain Estimated Income Taxes

274-10-45-12
Estimated income taxes shall be presented between liabilities and net worth in the statement of financial condition.

Adequate Disclosure

274-10-45-13
Personal financial statements shall include sufficient disclosures to make the statements adequately informative. The disclosures may be made in the body of the financial statements or in the notes to financial statements.

274-10-50Disclosure

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274-10-50-1
Paragraph 274-10-45-13 states that personal financial statements shall include sufficient disclosures to make the statements adequately informative. That paragraph states that the disclosures may be made in the body of the financial statements or in the notes to financial statements.
274-10-50-2
Personal financial statements disclosures shall include, but are not limited to, all of the following:
  1. a
    A clear indication of the individuals covered by the financial statements
  2. b
    That assets are presented at their estimated current values and liabilities are presented at their estimated current amounts
  3. c
    Either of the following:
    1. 1
      The methods used in determining the estimated current values of major assets and the estimated current amounts of major liabilities
    2. 2
      The methods used in determining the major categories of assets and liabilities.
  4. d
    Changes in item (c) methods from one period to the next
  5. e
    If assets held jointly by the person and by others are included in the statements, the nature of the joint ownership
  6. f
    If the person's investment portfolio is material in relation to his or her other assets and is concentrated in one or a few companies or industries, the names of the entities or industries and the estimated current values of the securities
  7. g
    If the person has a material investment in a closely held business, at least the following:
    1. 1
      The name of the entity and the person's percentage of ownership
    2. 2
      The nature of the business
    3. 3
      Summarized financial information about assets, liabilities, and results of operations for the most recent year based on the financial statements of the business, including information about the basis of presentation (for example, generally accepted accounting principles, income tax basis, or cash basis) and any significant loss contingencies.
  8. h
    Descriptions of intangible assets and their estimated useful lives
  9. i
    The face amount of life insurance the individuals own
  10. j
    Nonforfeitable rights that do not have the characteristics discussed in paragraph 274-10-35-11, for example, pensions based on life expectancy
  11. k
    All of the following tax information:
    1. 1
      The methods and assumptions used to compute the estimated income taxes on the differences between the estimated current values of assets and the estimated current amounts of liabilities and their tax bases
    2. 2
      A statement that the provision will probably differ from the amounts of income taxes that might eventually be paid because those amounts are determined by the timing and the method of disposal, realization, or liquidation and the tax laws and regulations in effect at the time of disposal, realization, or liquidation
    3. 3
      Unused operating loss and capital loss carryforwards
    4. 4
      Other unused deductions and credits, with their expiration periods, if applicable
    5. 5
      The differences between the estimated current values of major assets and the estimated current amounts of major liabilities or categories of assets and liabilities and their tax bases
    6. 6
      The excess or deficit of the estimated current values of major assets or categories of assets over their tax bases.
  12. l
    Maturities, interest rates, collateral, and other pertinent details relating to receivables and debt
  13. m
    Noncancellable commitments that do not have the characteristics discussed in paragraph 274-10-35-13.

274-10-55Implementation Guidance and Illustrations

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Implementation Guidance

274-10-55-1
This implementation guidance addresses estimating current value. Recent transactions involving similar assets and liabilities in similar circumstances ordinarily provide a satisfactory basis for determining the estimated current value of an asset and the estimated current amount of a liability. If recent sales information is unavailable, other methods that may be used include any of the following:
  1. a
    The capitalization of past or prospective earnings
  2. b
    The use of liquidation values
  3. c
    The adjustment of historical cost based on changes in a specific price index
  4. d
    The use of appraisals
  5. e
    The use of the discounted amounts of projected cash receipts and payments.
274-10-55-2
Costs of disposal, such as commissions, shall be considered in determining the estimated current value of an asset. The book value or cost of a person's share of the equity of a business adjusted for appraisals of specific assets, such as real estate or equipment, is sometimes used as the estimated current value.
274-10-55-3
In determining the estimated current values of some assets (for example, works of art, jewelry, restricted securities, investments in closely held businesses, and real estate), the person may need to consult a specialist.
274-10-55-4
There is no one generally accepted procedure for determining the estimated current value of an investment in a closely held business. Several procedures or combinations of procedures may be used to determine the estimated current value of a closely held business, including any of the following:
  1. a
    A multiple of earnings
  2. b
    Liquidation value
  3. c
    Reproduction value
  4. d
    Appraisals
  5. e
    Discounted amounts of projected cash receipts and payments
  6. f
    Adjustments of book value or cost of the person's share of the equity of the business.
The book value or cost of a person's share of the equity of a business adjusted for appraisals of specific assets, such as real estate or equipment, is sometimes used as the estimated current value.
274-10-55-5
The owner of an interest in a closely held business may have entered into a buy-sell agreement that specifies the amount (or the basis of determining the amount) to be received in the event of withdrawal, retirement, or sale. If such an agreement exists, it shall be considered, but it does not necessarily determine estimated current value. Whatever procedure is used, the objective shall be to approximate the estimated current value.
274-10-55-6
Information that may be used in determining the estimated current values of investments in real estate (including leaseholds) includes any of the following:
  1. a
    Sales of similar property in similar circumstances
  2. b
    The discounted amounts of projected cash receipts and payments relating to the property or the net realizable value of the property, based on planned courses of action, including leaseholds whose current rental value exceeds the rent in the lease
  3. c
    Appraisals based on estimates of selling prices and selling costs obtained from independent real estate agents or brokers familiar with similar properties in similar locations
  4. d
    Appraisals used to obtain financing
  5. e
    Assessed value for property taxes, including consideration of the basis for such assessments and their relationship to market values in the area.
274-10-55-7
This paragraph provides implementation guidance on the application of paragraph 274-10-35-11. Nonforfeitable rights that may have those characteristics include all of the following:
  1. a
    Guaranteed minimum portions of pensions
  2. b
    Vested interests in pension or profit sharing plans
  3. c
    Deferred compensation contracts
  4. d
    Beneficial interests in trusts
  5. e
    Remainder interests in property subject to life estates
  6. f
    Annuities
  7. g
    Fixed amounts of alimony for a definite future period.

Illustrations

274-10-55-8
This Example illustrates financial statements prepared following the guidance in this Subtopic.
274-10-55-9
Illustrative statements of financial condition follow.
  • James and Jane Person Statements of Financial Condition "December 31, 19X3 amd 19X2" December 31 19X3 19X2 Assets Cash " $3,700 " " $15,600 " Bonus receivable " 20,000 " " 10,000 " Investments Marketable securities (Note 2) " 160,500 " " 140,700 " Stock options (Note 3) " 28,000 " " 24,000 " Kenbruce Associates (Note 4) " 48,000 " " 42,000 " "DaveKar Company, Inc. (Note 5)" " 550,000 " " 475,000 " Vested interest in deferred profit sharing plan " 111,400 " " 98,900 " Remainder interest in testamentry trust (Note 6) " 171,900 " " 128,800 " "Cash value of life insurance ($43,600 and $42,900), less loans payable to insurance companies ($38,100 and $37,700) (Note 7)" " 5,500 " " 5,200 " Residence (Note 8) " 190,000 " " 180,000 " Personal effects (excluding jewelry) (Note 9) " 55,000 " " 50,000 " Jewelry (Note 9) " 40,000 " " 36,500 " " $1,384,000 " " $1,206,700 " December 31 19X3 19X2 Liabilities Income taxes - current year balance " $8,800 " $400 Demand 10.5% note payable to bank " 25,000 " " 26,000 " Mortgage payable (Note 10) " 98,200 " " 99,000 " Contingent liabilities (Note 11) - - " 132,000 " " 125,400 " Estimated income taxes on the differences between the estimated current value of assets and the estimated current values of liabilities and their tax bases (Note 12) " 239,000 " " 160,000 " Net worth " 1,013,000 " " 921,300 " " $1,384,000 " " $1,206,700 "
The accompanying notes to financial statements (see paragraph 274-10-55-11) are an integral part of these financial statements.
274-10-55-10
Illustrative statements of changes in net worth follow.
  • James and Jane Person Statements of Changes in Net Worth "For the Years Ended December 31, 19X3 and 19X2" Year ended December 31 19X3 19X2 Realized increases in net worth Salary and bonus " $95,000 " " $85,000 " Dividends and interest income " 2,300 " " 1,800 " Distribution from limited partnership " 5,000 " " 4,000 " Gains on sales of marketable securities " 1,000 " 500 " 103,300 " " 91,300 " Realized decreases in net worth Income taxes " 26,000 " " 22,000 " Interest expense " 13,000 " " 14,000 " Real estate taxes " 4,000 " " 3,000 " Personal expenditures " 36,700 " " 32,500 " " 79,700 " " 71,500 " Net realized increase in net worth " 23,600 " " 19,800 " Unrealized increases in net worth Marketable securities (net of realized gains on securities sold) " 3,000 " 500 Stock options " 4,000 " 500 "Davekar Company, Inc." " 75,000 " " 25,000 " Kenbruce Associates " 6,000 " - Deferred profit sharing plan " 12,500 " " 9,500 " Remainder interest in testamentary trust " 43,100 " " 25,000 " Jewelry " 3,500 " - " 147,100 " " 60,500 " Unrealized decrease in net worth Estimated income taxes in the differences between the estimated current values of assets and the estimated current amounts of liabilities and their tax bases " 79,000 " " 22,000 " Net unrealized increase in net worth " 68,100 " " 38,500 " Net increase in net worth " 91,700 " " 58,300 " Net worth at the beginning of year " 921,300 " " 863,000 " Net worth at the end of year " $1,013,000 " " $921,300 "
The accompanying notes to financial statements (see paragraph 274-10-55-11) are an integral part of these financial statements.
274-10-55-11
Illustrative notes to financial statements follow.
  • James and Jane Person—Notes to Financial Statements
  • NOTE 1. The accompanying financial statements include the assets and liabilities of James and Jane Person. Assets are stated at their estimated current values, and liabilities at their estimated current amounts.
  • NOTE 2. The estimated current values of marketable securities are either (a) their quoted closing prices or (b) for securities not traded on the financial statement date, amounts that fall within the range of quoted bid and ask prices.
    • Marketable securities consist of the following:
    • "December 31, 19X3" "December 31, 19X2" Number of shares or bonds Estimated current values Number of shares or bonds Estimated current values Stocks "Jaiven Jewels, Inc." " 1,500 " " $98,813 " - $- "McRae Motors, Inc." 800 " 11,000 " 600 " 4,750 " "Parker Sisters, Inc." 400 " 13,875 " 200 " 5,200 " Rosenfield Rug Co. - - " 1,200 " " 96,000 " Rubin Paint Company 300 " 9,750 " 100 " 2,875 " "Weiss Potato Chips, Inc." 200 " 20,337 " 300 " 25,075 " " 153,775 " " 133,900 " Bonds "Jackson Van Lines, Ltd. (12% due 7/1/X9)" 5 " 5,225 " 5 " 5,100 " "United Garvey, Inc. (7% due 11/15/X6)" 2 " 1,500 " 2 " 1,700 " " 6,725 " " 6,800 " " $160,500 " " $140,700 "
  • NOTE 3. Jane Person owns options to acquire 4,000 shares of stock of Winner Corp. at an option price of $5 per share. The option expires on June 30, 19X5. The estimated current value its published selling price.
  • NOTE 4. The investment in Kenbruce Associates is an 8 percent interest in a real estate limited partnership. The estimated current value is determined by the projected annual cash receipts and payments capitalized at a 12 percent rate.
  • NOTE 5. James Person owns 50 percent of the common stock of Davekar Company, Inc. a retail mail order business. The estimated current value of the investment is determined by the provisions of a shareholders' agreement, which restricts the sale of the stock and, under certain conditions, requires the entity to repurchase the stock based on a price equal to the book value of the net assets plus an agreed amount for goodwill. At December 31, 19X3, the agreed amount for goodwill was $112,500, and at December 31, 19X2, it was $100,000.
    • A condensed balance sheet of Davekar Company, Inc. prepared in conformity with generally accepted accounting principles, is summarized below:
    • "December 31," 19X3 19X2 Current assets " $3,147,000 " " $2,975,000 " "Plant, property and equipment - net" " 165,000 " " 145,000 " Other assets " 120,000 " " 110,000 " Total assets " 3,432,000 " " 3,230,000 " Current liabilities " 2,157,000 " " 2,030,000 " Long-term liabilities " 400,000 " " 450,000 " Total liabilities " 2,557,000 " " 2,480,000 " Equity " 875,000 " " 750,000 " Total Liabilities and Equity " $3,432,000 " " $3,230,000 "
    • The sales and net income for 19X3 were $10,500,000 and $125,000 and for 19X2 were $9,700,000 and $80,000.
  • NOTE 6. Jane Person is the beneficiary of a remainder interest in a testamentary trust under the will of the late Joseph Jones. The amount included in the accompanying statements is her remainder interest in the estimated current value of the trust assets, discounted at 10 percent.
  • NOTE 7. At December 31, 19X3 and 19X2, James Person owned a $300,000 whole life insurance policy.
  • NOTE 8. The estimated current value of the residence is the appraised value based on an estimate of selling price, net of estimated selling costs obtained from an independent real estate agent familiar with similar properties in similar locations.
  • NOTE 9. The estimated current values of personal effects and jewelry are the appraised values of those assets, determined by an independent appraiser for insurance purposes.
  • NOTE 10. The mortgage (collateralized by the residence) is payable in monthly installments of $815 a month, including interest at 10 percent a year through 20Y8.
  • NOTE 11. James Person has guaranteed the payment of loans of Davekar Company, Inc., under a $500,000 line of credit. The loan balance was $300,000 at December 31, 19X3, and $400,000 at December 31, 19X2.
  • NOTE 12. The estimated current amounts of liabilities at December 31, 19X3, and December 31, 19X2, equaled their tax bases. Estimated income taxes have been provided on the excess of the estimated current values of assets over their tax bases as if the estimated current values of the assets had been realized on the statement date, using applicable tax laws and regulations. The provision will probably differ from the amounts of income taxes that eventually might be paid because those amounts are determined by the timing and the method of disposal or realization and the tax laws and regulations in effect at the time of disposal or realization.
    • The estimated current values of assets exceeded their tax bases by $850,000 at December 31, 19X3, and by $770,300 at December 31, 19X2. The excess of estimated current values of major assets over their tax bases are:
    • "December 31," 19X3 19X2 "Investment in Davekar Company, Inc." " $430,500 " " $355,500 " Vested interest in deferred profit sharing plan " 111,400 " " 98,900 " Investment in marketable securities " 104,100 " " 100,000 " Remainder interest in testamentary trust " 97,000 " " 53,900 "
274-10-55-12
This Example illustrates how to compute the excess of the estimated current values of assets over their tax bases and the provision for estimated income taxes on the excess. This Example uses the same information as in the illustrative financial statements in Example 1 (see paragraph 274-10-55-8). The provision for estimated income taxes should also reflect tax consequences that result from differences between the estimated current amounts of liabilities and their tax base.
274-10-55-13
Paragraph 274-10-50-2(k)(6) requires that the excess or deficit of the estimated current values of major assets or categories of assets over their tax bases be disclosed. That paragraph also requires that differences between the estimated current amounts of major liabilities or categories of liabilities and their tax bases also be disclosed. Paragraph 274-10-45-12 requires that the amount of estimated income taxes be presented in the statement of financial condition between liabilities and net worth.
274-10-55-14
The assumptions and the tax basis information used in computing the excess of the estimated current values of assets over their tax bases and the estimated income taxes on the excess depend on the facts, circumstances, tax laws and regulations, and assumptions that apply to the individual or individuals for whom the financial statements are prepared. The facts, circumstances, tax laws and regulations, and assumptions used in the following are illustrative only.
  • Description "(Column 1) Estimated current values" "(Column 2) Tax bases" Excess of (1) over (2) Effective income tax rates Amount of estimated income taxes Assumptions used Cash " $3,700 " " $3,700 " - - - No tax effect Bonus receivable " 20,000 " - " $20,000 " 50% " $10,000 " Maximum tax rate Investments Market securities " 160,500 " " 56,400 " " 104,100 " 36% " 37,500 " Weighted average of short-term and long-term capital gain rates based on composition of portfolio Stock options " 28,000 " " 20,000 " " 8,000 " 50% " 4,000 " Short-term capital gain rate Kenbruce Associates " 48,000 " " 24,000 " " 24,000 " 38% " 9,100 " Weighted average of short-term and long-term capital gain rates "Davekar Company, Inc." " 550,000 " " 119,500 " " 430,500 " 20% " 86,100 " Long-term capital gain rate Vested interest in deferred profit sharing plan " 111,400 " - " 111,400 " 50% " 55,700 " Maximum tax rate Remainder interest in testamentary trust " 171,900 " " 74,900 " " 97,000 " 26% " 25,200 " Weighted average of short-term and long-term capital gain rates Cash value of life insurance " 5,500 " " 5,500 " - - - No tax effect Residence " 190,000 " " 190,000 " - - - No tax effect Personal effects " 55,000 " " 30,000 " " 25,000 " 20% " 5,000 " Long-term capital gain rate Jewelery " 40,000 " " 10,000 " " 30,000 " 20% " 6,000 " Long-term capital gain rate " $1,384,000 " " $534,000 " " $850,000 " (a) " $239,000 " (b) (a) The excess or deficit of the estimated current values of major assets or categories of assets over their tax bases shall be disclosed (b) This amount shall be presented in the statement of financial condition between liabilities and net worth

274-10-65Transition and Open Effective Date Information

Source downloaded: .Record version 9cb83ea40ab2. Effective date must be checked in the source.

274-10-65-1
Paragraph superseded on 07/05/2017 after the end of the transition period stated in Accounting Standards Update No. 2015-10, Technical Corrections and Improvements.

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