United States

MLP dropdown transactions: Effects on historical earnings per unit


When a general partner transfers (or “drops down”) net assets to a master limited partnership (MLP) and that transaction is accounted for as a transaction between entities under common control, the statements of operations of the MLP are adjusted retrospectively to reflect the dropdown transaction as if it occurred on the earliest date during which the entities were under common control. However, current generally accepted accounting principles do not address how to present historical earnings per unit for periods before the date of a dropdown transaction that occurs after formation of an MLP. To address this issue, the Financial Accounting Standards Board recently issued Accounting Standards Update (ASU) 2015-06, Earnings Per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions (a consensus of the FASB Emerging Issues Task Force)

This ASU specifies that, for purposes of calculating historical earnings per unit under the two-class method, the earnings (losses) of a transferred business before the date of a dropdown transaction should be allocated entirely to the general partner. In that circumstance, the previously reported earnings per unit of the limited partners (which is typically the earnings per unit measure presented in the financial statements) would not change as a result of the dropdown transaction. Qualitative disclosures about how the rights to the earnings (losses) differ before and after the dropdown transaction occurs for purposes of computing earnings per unit under the two-class method also are required.

The ASU is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. Earlier application is permitted.