According to ASC 480-10 also called Distinguishing assets and liabilities from Equity, it needs for the issuer to categorize three classes of financial instruments such as liabilities and assets. literally, accounting policy for Assets and Liabilities in investment is critical in realizing value. The first step involves financial instruments which are mandatorily redeemable. The second step involves the repurchase obligation of the shares of equity of an entity through asset transfer. The third involves obligations of issuing variable number of shares of equity.
Certain entities for example limited liabilities, partnerships or trusts are introduced for certain purpose of projects. These may have a finite life. The documents for governing the situation such as articles of association or partnership agreement have specific date. This date maybe for termination or liquidation of its assets. Huge amount of cash will be distributed to holders of its equity instruments. When equity instruments are issued by the entities, its certain that redemption will occur. Therefore, the interest will meet certain definitions based on the ASC 480-10-20 of a mandatorily redeemable instrument of finance. Furthermore, following the development and adherence to ASC480, the FASB made the conclusion that entities are not supposed to classify the interest as liabilities. If the equity instruments are redeemed due to termination or liquidation of the entity reporting, the instruments are categorized as equity.
The investment company is required to have investors unrelated to the parent or investment manager. For the SPV, the FRBNY is not defined as an investor nor does the FRBNY referred to as related parties. The SPV has ownership interest from Treasury while investment firms have ownership interest of partners or equity investors. The accounting policy for Assets and Liabilities in investment portfolio is key . All investments under the investment firm are managed at fair value while SPV manages its investments at amortized cost or held to maturity. Therefore, based on the above analysis, the SPV should be considered an investment company.
The agreement of the LLC based on section 13 also called Distribution to members indicate final member distributions takes place after undertaking Credit Agreement that has finally been repaid and terminated. Furthermore, section 14 provides that a member is not entitled to asset distribution in respect to their interest as members. Therefore, equity investment for Treasury is categorized as cash and cash equivalent in the financial statements of the LLC. The FRBNY financial consolidation employs the use of instruments which are redeemable mandatorily after termination or liquidation of a subsidiary. The instruments are not categorized as liabilities based on ASC 480-10 despite meeting the definition of financial instrument redeemable mandatorily. It will be categorized as cash and cash equivalent in the financial statement after consolidation