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Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others FASB Interpretation No. 46, Consolidation of Variable Interest Entities



A U.S. enterprise purchases a depreciable asset and enters into an arrangement with a foreign investor that provides the foreign investor with an ownership right in, but not necessarily title to, the asset. That ownership right enables the foreign investor to claim certain benefits of ownership of the asset for tax purposes in the foreign tax jurisdiction. The U.S. enterprise also enters into an agreement in the form of a leaseback for the ownership right with the foreign investor. The lease agreement contains a purchase option for the U.S. enterprise to acquire the foreign investor's ownership right in the asset at the end of the lease term. [Note: See STATUS section.] Copyright © 2010, Financial Accounting Standards Board Not for redistribution Page 1The foreign investor pays the U.S. enterprise an amount of cash based on an appraised value of the asset. The U.S. enterprise immediately transfers a portion of that cash to a third party, and that third party assumes the U.S. enterprise's obligation to make the future lease payments, including the purchase option payment. The cash retained by the U.S. enterprise is consideration for the tax benefits to be obtained by the foreign investor in the foreign tax jurisdiction. The U.S

Topics: AICPA Audit and Accounting Guide, Audits of Investment Companies
Year: 1989
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