This Example presents an illustration of a
spinoff.
Big Company owns and operates a mall and a retail store that occupies the anchor store position in that mall. The mall and the store are managed by two separate divisions. The shareholders of Big Company would like to split Big Company into two entities so that each can focus on its own operations. To achieve this, Big Company transfers the mall's assets and operations into a newly created subsidiary, Mall Company, and distributes the shares of Mall Company to its shareholders on a pro rata basis in a spinoff.
Paragraph
505-60-25-2 provides guidance on the accounting for a spinoff.
This Example presents an illustration of a
reverse spinoff.
Snack Food Company owns two subsidiaries—Ice Cream Subsidiary and Snack Subsidiary. Ice Cream Subsidiary is significantly larger and more profitable than Snack Subsidiary. The shareholders of Snack Food Company would like to continue the ice cream operations and dispose of the snack food operations. To facilitate this, Snack Food Company distributes the shares of Ice Cream Subsidiary to the shareholders thereby creating Ice Cream Company. The shareholders are then able to dispose of the operations of Snack Food Company (now solely comprising Snack Subsidiary operations) by selling the shares directly to a third party and, at the same time, retain ownership of the Ice Cream Company.
Paragraphs
provide guidance on the accounting for a reverse spinoff.
The designation of Retail Company as the accounting spinnor will provide the most accurate depiction of the transaction to shareholders and other users of the financial statements because, in substance, Retail Company has spun off its Restaurant Company into a separate entity.
This Example demonstrates the application of the requirements in paragraph
505-60-25-8 to identify the accounting spinnor and spinnee, which may differ from the legal spinnor and spinnee. This Example has the following assumptions:
- a
Retail Company, a retail store chain, has a wholly owned restaurant subsidiary. The retail and restaurant operations are operated independently, with a small executive management team overseeing both. While the restaurant subsidiary has grown rapidly, the retail operations have deteriorated steadily due to increased competition. The shareholders believe that the two operations should be separated by way of a spinoff. Management intends to dispose of the retail operations.
- b
In order to accomplish the spinoff, Retail Company creates a new legal entity, Restaurant Company, into which the assets and operations of the restaurant subsidiary are transferred. The shares of Restaurant Company are then distributed to the shareholders of Retail Company on a pro rata basis.
- c
The executive management team of the combined entity will be assigned primarily to Restaurant Company, as the intent is to dispose of Retail Company (now solely comprising the retail operations). A comparison of certain statistics of the two entities is as follows.
![](\"/asc-img/GUID-972753C7-3BE8-473A-8B7D-B1DA5EC25157-low.gif\")
(In 000s) Assets Revenues Net Income Fair Value Retail $300 $210 $35 $375 Restaurant $600 $450 $150 $700\t
The designation of Restaurant Company as the accounting spinnor will provide the most accurate depiction of the transaction to shareholders and other users of the financial statements, as, in substance, Retail Company has disposed of its retail operations and continued its restaurant operations.
![\"](\"/asc-img/GUID-D33BABC8-44AE-4379-83D2-3839497EDAA5-low.gif\")
(In 000s) Assets Revenues Net Income Fair Value Retail $500 $410 $150 $675 Restaurant $100 $75 $21 $170