sponsor

ASC 470-40 governs product financing arrangements — transactions in which a "sponsor" arranges for another entity to buy and hold inventory on its behalf (or controls the disposition of such product) with a related commitment to buy it back at specified prices covering the other entity's financing and holding costs. Because the sponsor is in substance the owner of the product, the arrangement is accounted for as a borrowing rather than a sale: the sponsor records the inventory as an asset and a corresponding liability when the other entity buys the product (470-40-25-1 through 25-2). After ASU 2014-09, sale-and-repurchase legs are handled under Topic 606, leaving this Subtopic focused on purchases made by another entity on the sponsor's behalf.

ASC 810-30 tells a sponsor how to account for a research and development arrangement in which the sponsor funds 100% of the R&D activities — typically by capitalizing a new entity (Newco) with cash and technology rights, spinning off Newco's Class A common stock to the sponsor's shareholders, and retaining a purchase option and nominal Class B shares. The sponsor reclassifies the contributed cash as restricted cash, recognizes R&D expense as the activities are performed, and records the Class A distribution as a dividend at the fair value of that stock. The Class A stock is presented as noncontrolling interest classified in equity but separate from the parent's equity, and exercise of the purchase option is accounted for like an acquisition of a noncontrolling interest.