Oregon Bank & Nesheim Construction: Financial Reporting Case Study

This case study analyzes the financial reporting issues of Nesheim Construction Company, which has a loan payable to Oregon Bank and a receivable from the same bank for remodeling work. The controller is contemplating whether to offset these amounts. The solution, based on FASB ASC, clarifies that current assets and liabilities should be disclosed separately to allow stakeholders to compute working capital. It also states that offsetting is not permitted because the loan and remodeling agreements are separate, lacking a contractual right to offset. The document references ASC-210 for guidance on the balance sheet and offsetting principles. The conclusion emphasizes that the company should report the loan payable and receivable separately, adhering to accounting standards.

Case #1
Date: 29-09-2015
To: Betty
From:
Re: Nesheim Case
Facts:
Nesheim construction company has borrowed $ 500,000 from Oregon bank and the company has also
remodeled the bank’s main branch facility for a consideration of $ 200,000.
Bank has agreed to pay the consideration of $ 200,000 in 6 months’ time, Both the receivable for
remodeling work and payable for loan is outstanding as at the end of the year.
Issues:
Betty johnson, the controller of Nesheim construction company is contemplating, if it is allowed to offset
the amount of receivable from the amount of payable, and hence, report a net amount in notes payable
in the balance sheet. Based on her doubts, there are following two questions, which needs to be
answered:
1. How to report the amount of loan payable to the bank and amount receivable from the bank for
remodeling work?
2. Is it allowed to offset the two amounts, resulting in a net notes payable of $ 300,000.
Conclusion:
1. Paragraph # 210-10, of the FASB Accounting Standards Codification (ASC), provides general
guidance in relation to classifying the current assets and liabilities. It requires separate and clear
disclosure of current assets and current liabilities, enabling the stakeholders, to compute the
working capital employed in the company.
Thus, in the given case, Nesheim company should show the amount of loan payable to the bank,
in the current or non-current liabilities, depending on the agreement with the bank and the
amount receivable from the bank on account of remodeling work performed for the bank, shall
be disclosed in the current assets of the company.
2. According to paragraph # 210-20, offsetting, of the FASB Accounting Standards Codification
(ASC), Nesheim company is not allowed to offset the amount receivable from bank as
consideration for the remodeling work with the amount of loan payable to the bank.
As per the above-mentioned paragraph, offsetting is permissible, only in cases where a
contractual right to offset exists. In the given case, the loan agreement and the agreement to
perform remodeling work are separate agreements, with their own terms and conditions and

there is no explicit right to set off the amount payable to the bank for loan, from the amount
receivable from the bank for work carried out.
Reasoning/Support:
1. The following paragraph of FASB ASC provides authoritative guidance for reporting the current
assets and current liabilities separately:
210-10 – Current assets and current liabilities are required to be shown separately in the
statement of financial position, for enabling the stakeholders in computing the amount of
working capital deployed in the business, easily, based on the statement of financial position
(ASC-210, FASB).
2. Guidance pertaining to offsetting of assets and liabilities are provided by the following
paragraphs:
210-20 – Offsetting of assets and liabilities is improper, except in cases where the contractual
right to offset the assets and liabilities exist. It is usually though to exist in the cases of
unconditional receivable and payable from/to the party (ASC-210, FASB).
References:
ASC-210- Balance sheet. Retrieved from
https://www.iasplus.com/en-us/standards/fasb/presentation/asc210. Viewed on 29 September
2019.
Offsetting of financial assets and liabilities in the balance sheet: Key difference between U.S. GAAP and
IFRSs. Retrieved from https://www.iasplus.com/en-us/standards/ifrs-usgaap/offsetting-balance-
sheet. Viewed on 29 September 2019
Codification improvements (2018). Retrieved from https://asc.fasb.org/imageRoot/13/117405313.pdf.
Viewed on 29 September 2019