ASC 950: Title Plant Development Costs Journal Entries for Financial Services
Posted In | ASC Education | Gridlex AcademyAccounting Standards Codification (ASC) Topic 950, "Financial Services - Title Plant," provides guidance on accounting for title plant development costs in the title insurance industry. A title plant is a database containing records of real estate transactions and other information used by title insurance companies to determine the insurability of a property's title. The development of a title plant involves compiling and organizing historical records, which can be costly and time-consuming. Proper accounting for title plant development costs is essential to accurately reflect the financial position and performance of title insurance companies. This article will explain the concept of title plant development costs transactions under ASC 950 and provide examples of journal entries that illustrate the proper accounting treatment for these transactions.
Title Plant Development Costs Transaction
Under ASC 950, title plant development costs are capitalized as an asset on the balance sheet of a title insurance company. These costs include the direct costs of compiling and organizing the records, as well as other costs directly related to the development of the title plant, such as software development or data conversion. Once the title plant is operational, the capitalized costs are amortized over the estimated useful life of the title plant, typically ranging from 15 to 40 years, depending on the company's specific circumstances.
Journal Entries for Title Plant Development Costs Transaction
To better understand the accounting treatment for title plant development costs transactions, let's look at a hypothetical example.
Example:
Title Insurance Company N incurs $5 million in costs to develop a new title plant.
Journal Entry 1: Record the title plant development costs
Title Insurance Company N would record the title plant development costs as follows:
Debit: Title Plant (Asset) $5 million
Credit: Cash $5 million
The debit to title plant represents the capitalization of the development costs, while the credit to cash represents the cash outflow for the development costs.
Journal Entry 2: Record the amortization of the title plant
Assuming that Title Insurance Company N estimates the useful life of the title plant to be 20 years, the annual amortization expense would be calculated as follows:
Annual amortization expense = Title plant development costs / Estimated useful life
Annual amortization expense = $5 million / 20 years
Annual amortization expense = $250,000
Title Insurance Company N would record the annual amortization expense as follows:
Debit: Amortization Expense $250,000
Credit: Accumulated Amortization - Title Plant $250,000
The debit to amortization expense represents the annual amortization expense, which is recognized in the income statement. The credit to accumulated amortization - title plant reflects the accumulated amortization on the title plant, which is presented as a contra-asset account in the balance sheet.
ASC 950 provides guidance on accounting for title plant development costs in the title insurance industry, ensuring that title insurance companies accurately capitalize and amortize these costs. By following the principles outlined in ASC 950, title insurance companies can properly account for title plant development costs transactions and provide useful information to investors and other stakeholders. It is essential for accountants and financial professionals to understand and apply the principles of ASC 950 when dealing with title plant development costs transactions in the title insurance industry in order to maintain compliance with accounting standards and provide accurate financial information to stakeholders.