# ASC 323-974-25: Investments—Equity Method and Joint Ventures — Real Estate—Real Estate Investment Trusts — 25 Recognition

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/323/974/#25-recognition)

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## ASC 323-974-25: 25 Recognition

[Read section](https://asc.understandingaccounting.org/asc/323/974/#25-recognition)

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#### Service Corporations

##### [323-974-25-1](https://asc.understandingaccounting.org/asc/323/974/#323-974-25-1)

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The existence of some or all of the following factors indicates that the [real estate investment trust](https://asc.understandingaccounting.org/glossary/r/#real-estate-investment-trust "Real estate investment trusts generally are formed as trusts, associations, or corporations. They employ equity capital, coupled with substantial amounts of debt financing, in making real estate loans and investments. Real estate investment trusts must distribute substantially all of their taxable income to their shareholders annually in order to retain their favorable tax status (that is, dividends paid are treated as deductions in arriving at taxable income).") has the ability to exercise at least significant influence over the [service corporation](https://asc.understandingaccounting.org/glossary/s/#service-corporation "A real estate investment trust may establish a service corporation to perform services for the real estate investment trust or for third parties. Service corporations may provide property management and leasing services, as well as services to acquire, develop, construct, finance, or sell real estate projects.") and that, accordingly, the real estate investment trust should either account for its investment under the equity method or should consolidate the investee.

1.  a
    
    The service corporation performs activities primarily for the real estate investment trust.
    
2.  b
    
    Substantially all of the economic benefits in the service corporation flow to the real estate investment trust.
    
3.  c
    
    The real estate investment trust has the ability to designate a seat on the board of directors of the service corporation.
    
4.  d
    
    The real estate investment trust and the service corporation have common board members.
    
5.  e
    
    The real estate investment trust and the service corporation have common officers, employees, or both.
    
6.  f
    
    The owners of the majority voting stock of the service corporation have not contributed substantial equity to the service corporation.
    
7.  g
    
    The views of the real estate investment's management influence the operations of the service corporation.
    
8.  h
    
    The real estate investment trust is able to obtain financial information from the service corporation that is needed to apply the equity method of accounting to its investment in the service corporation.
    

The determination of whether the real estate investment trust should use the equity method of accounting for its investment in the service corporation or consolidate the service corporation in its financial statements should be based on facts and circumstances.

##### [323-974-25-2](https://asc.understandingaccounting.org/asc/323/974/#323-974-25-2)

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