| Accounting Policies | 9 Months Ended |
| Sep. 30, 2014 |
| Notes | ' |
| Accounting Policies | ' |
| 1. Business |
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| Commonwealth Income & Growth Fund VI (the “Partnership”) is a limited partnership organized in the Commonwealth of Pennsylvania on January 6, 2006. The Partnership offered for sale up to 2,500,000 units of the limited partnership at the purchase price of $20 per unit (the “offering”). The Partnership reached the minimum amount in escrow and commenced operations on May 10, 2007. The offering terminated on March 6, 2009 with 1,810,311 units sold for a total of approximately $$36,000,000 in limited partner contributions. |
| The Partnership uses the proceeds of the offering to acquire, own and lease various types of information technology equipment and other similar capital equipment, which will be leased primarily to U.S. corporations and institutions. Commonwealth Capital Corp. (“CCC”), on behalf of the Partnership and other affiliated partnerships, acquires equipment subject to associated debt obligations and lease agreements and allocates a participation in the cost, debt and lease revenue to the various partnerships that it manages based on certain risk factors. |
| The Partnership’s General Partner is Commonwealth Income & Growth Fund, Inc. (the “General Partner”), a Pennsylvania corporation which is an indirect wholly owned subsidiary of CCC. CCC is a member of the Investment Program Association (IPA), Financial Planning Association (FPA), and the Equipment Leasing and Finance Association (ELFA). Approximately ten years after the commencement of operations, the Partnership intends to sell or otherwise dispose of all of its equipment, make final distributions to partners, and to dissolve. Unless sooner terminated or extended pursuant to the terms of its Limited Partnership Agreement, the Partnership will continue until December 31, 2018. |
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| 2. Summary of Significant Accounting Policies |
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| Basis of Presentation |
| The financial information presented as of any date other than December 31, 2013 has been prepared from the books and records without audit. Financial information as of December 31, 2013 has been derived from the audited financial statements of the Partnership, but does not include all disclosures required by generally accepted accounting principles to be included in audited financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods indicated, have been included. For further information regarding the Partnership’s accounting policies, refer to the financial statements and related notes included in the Partnership’s annual report on Form 10-K for the year ended December 31, 2013. Operating results for the six months ended June 30, 2014 are not necessarily indicative of financial results that may be expected for the full year ended December 31, 2014. |
| Disclosure of Fair Value of Financial Instruments |
| Estimated fair value was determined by management using available market information and appropriate valuation methodologies. However, judgment was necessary to interpret market data and develop estimated fair value. Cash and cash equivalents, receivables, accounts payable and accrued expenses and other liabilities are carried at amounts which reasonably approximate their fair values as of September 30, 2014 and December 31, 2013 due to the short term nature of these financial instruments. |
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| The Partnership’s debt consists of notes payable, which are secured by specific equipment and are nonrecourse liabilities of the Partnership. The estimated fair value of this debt at September 30, 2014 and December 31, 2013 approximates the carrying value of these instruments, due to the interest rates on the debt approximating current market interest rates. The Partnership classifies the fair value of its notes payable within Level 2 of the valuation hierarchy based on the observable inputs used to estimate fair value. |
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| Cash and cash equivalents |
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| We consider cash and cash equivalents to be cash on hand and highly liquid investments with the original maturity dates of 90 days or less. |
| At September 30, 2014, cash was held in two bank accounts maintained at one financial institution with an aggregate balance of approximately $199,000. Bank accounts are federally insured up to $250,000 by the FDIC. At September 30, 2014, the total cash bank balance was as follows: |
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| | Balance at September 30, | | | 2014 | | | | | | | | | | | |
| Total bank balance | | $ | 199,000 | | | | | | | | | | | |
| FDIC insured | | | -199,000 | | | | | | | | | | | |
| Uninsured amount | | $ | 0 | | | | | | | | | | | |
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| The Partnership believes it mitigates the risk of holding uninsured deposits by only depositing funds with major financial institutions. The Partnership has not experienced any losses in our accounts, and believes it is not exposed to any significant credit risk. The amounts in such accounts will fluctuate throughout 2014 due to many factors, including cash receipts, equipment acquisitions, interest rates and distributions to limited partners. |
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| Recent Accounting Pronouncements |
| In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, requires management to determine whether substantial doubt exists regarding the entity’s going concern presumption. If substantial doubt exists but is not alleviated by management’s plans, the footnotes must specifically state that “there is substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued.” In addition, if substantial doubt exists, regardless of whether such doubt was alleviated, entities must disclose (a) principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern (before consideration of management’s plans, if any); (b) management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations; and (c) management’s plans that are intended to mitigate the conditions or events that raise substantial doubt, or that did alleviate substantial doubt, about the entity’s ability to continue as a going concern. If substantial doubt has not been alleviated, these disclosures should become more extensive in subsequent reporting periods as additional information becomes available. In the period that substantial doubt no longer exists (before or after considering management’s plans), management should disclose how the principal conditions and events that originally gave rise to substantial doubt have been resolved. The ASU applies prospectively to all entities for annual periods ending after December 15, 2016, and to annual and interim periods thereafter. Early adoption is permitted. The Partnership is currently evaluating the effect that this ASU will have on its financial statements. |
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| In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Partnership is currently evaluating the effect that this ASU will have on its financial statements. |
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| In April 2014, the FASB issued ASU No. 2014-08 (“ASU Updated 2014-08”), Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU provides guidance on the change in criteria established to enhance the presentation of reporting discontinued operations. The guidance is effective for annual financial statements beginning on or after December 15, 2014 that report discontinued operations or disposals of components of an entity. The Partnership is currently evaluating the effect that this ASU will have on its financial statements. |
| In March 2014, the FASB issued ASU No. 2014-06 (“ASU Updated 2014-06”), Technical Corrections and Improvements Related to Glossary Terms. This ASU provides updates to the FASB Accounting Standards Codification established in September 2009 as the source of authoritative U.S. GAAP recognized by the FASB. The update is effectively immediately upon issuance. The Partnership adopted this ASU during the first quarter of 2014 and there was no material impact on its financial statements. |
| In April 2013, the FASB issued ASU No. 2013-07 (“ASU Updated 2013-07”), Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting. This ASU provides guidance on the application of the liquidation basis of accounting as provided by U.S. GAAP. The guidance will improve the consistency of financial reporting for liquidating entities. The guidance in this ASU is effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. The Partnership is currently evaluating the effect that this ASU will have on its financial statements during the liquidation phase of its life cycle. |
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| 3. Information Technology, Medical Technology, Telecommunications Technology, Inventory Management Equipment (“Equipment”) |
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| The Partnership is the lessor of equipment under leases with periods that generally will range from 12 to 48 months. In general, associated costs such as repairs and maintenance, insurance and property taxes are paid by the lessee. |
| Remarketing fees will be paid to the leasing companies from which the Partnership purchases leases. These are fees that are earned by the leasing companies when the initial terms of the lease have been met. The General Partner believes that this strategy adds value since it entices the leasing company to remain actively involved with the lessees for potential extensions, remarketing or sale of equipment. This strategy is designed to minimize any conflicts the leasing company may have with a new lessee and may assist in maximizing overall portfolio performance. The remarketing fee is tied into lease performance thresholds and is a factor in the negotiation of the fee. Remarketing fees incurred in connection with lease extensions are accounted for as operating costs. Remarketing fees incurred in connection with the sale of equipment are included in the gain or loss calculations. For the nine months ended September 30, 2014 and 2013, remarketing fees were incurred in the amounts of approximately $4,000 and 31,000. For the nine months ended September 30, 2014 and 2013, approximately $0 and 61,000 of remarketing fees were paid with cash or netted against receivables due from such parties, respectively. |
| CCC, on behalf of the Partnership and other affiliated partnerships, acquires equipment subject to associated debt obligations and lease agreements and allocates a participation in the cost, debt and lease revenue through a transfer or sale and assignment to the various partnerships based on certain risk factors. |
| The Partnership’s share of the cost of the equipment in which it participates with other partnerships at September 30, 2014 was approximately $5,860,000 and is included in the fixed assets on its balance sheet. The Partnership’s share of the outstanding debt associated with this equipment at September 30, 2014 was approximately $404,000 and is included in the Partnership’s notes payable on its balance sheet. The total cost of the equipment shared by the Partnership with other partnerships at September 30, 2014 was approximately $12,704,000. The total outstanding debt related to the equipment shared by the Partnership at September 30, 2014 was approximately $1,247,000. |
| The Partnership’s share of the cost of the equipment in which it participates with other partnerships at December 31, 2013 was approximately $6,066,000 and is included in the fixed assets on its balance sheet. The Partnership’s share of the outstanding debt associated with this equipment at December 31, 2013 was approximately $174,000 and is included in the Partnership’s notes payable on its balance sheet. The total cost of the equipment shared by the Partnership with other partnerships at December 31, 2013 was approximately $13,646,000. The total outstanding debt related to the equipment shared by the Partnership at December 31, 2013 was approximately $455,000. |
| Gains from the termination of leases are recognized when the lease is modified and terminated concurrently. Gains from lease termination included in lease revenue for the nine months ended September 30, 2014 was approximately $185,000. For the nine months ended September 30, 2013, the Partnership did not recognize any gain from the termination of leases. |
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| As the Partnership and the other programs managed by the General Partner acquire new equipment for the Partnerships, opportunities for shared participation are expected to continue. Sharing in the acquisition of a lease portfolio gives the fund an opportunity to acquire additional assets and revenue streams, while allowing the fund to remain diversified and reducing its overall risk with respect to one portfolio. Thus, total shared equipment and related debt should continue to occur throughout the remainder of 2014. |
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| The following is a schedule of future minimum rentals on non-cancellable operating leases at September 30, 2014: |
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| | | Amount | | | | | | | | | | | | |
| Three months Ended December 31, 2014 | | | 556,000 | | | | | | | | | | | | |
| Year Ended December 31, 2015 | | | 1,178,000 | | | | | | | | | | | | |
| Year Ended December 31, 2016 | | | 372,000 | | | | | | | | | | | | |
| Year Ended December 31, 2017 | | | 51,000 | | | | | | | | | | | | |
| | | $ | 2,157,000 | | | | | | | | | | | | |
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| The following lists the components of the net investment in direct financing leases at September 30, 2014: |
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| Total minimum lease payments to be received | | $ | 146,000 | | | | | | | | | | | | |
| Estimated residual value of leased equipment (unguaranteed) | | | 20,000 | | | | | | | | | | | | |
| Initial direct costs | $ | | 5,000 | | | | | | | | | | | | |
| Less: unearned income | | | -20,000 | | | | | | | | | | | | |
| Net investment in direct finance leases | | $ | 151,000 | | | | | | | | | | | | |
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| Our finance lease customers operate in various industries, and we have no significant customer concentration in any one industry. We assess credit risk for all of our customers, including those that lease under finance leases. This credit risk is assessed using an internally developed model which incorporates credits scores from third party providers and our own customer risk ratings and is periodically reviewed. Our internal ratings are weighted based on the industry that the customer operates in. Factors taken into consideration when assessing risk includes both general and industry specific qualitative and quantitative metrics. We separately take in to consideration payment history, open lawsuits, liens and judgments. Typically, we will not extend credit to a company that has been in business for less than 5 years or that has filed for bankruptcy within the same period. Our internally based model may classify a company as high risk based on our analysis of their audited financial statements. Additional considerations of high risk may include history of late payments, open lawsuits and liens or judgments. In an effort to mitigate risk, we typically require deposits from those in this category. The following table presents the credit risk profile, by creditworthiness category, of our finance lease receivables at September 30, 2014: |
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| Risk Level | | Percent of Total | | | | | | | | | | | | |
| Low | | | 0 | % | | | | | | | | | | | |
| Moderate-Low | | | 0 | % | | | | | | | | | | | |
| Moderate | | | 100 | % | | | | | | | | | | | |
| Moderate-High | | | 0 | % | | | | | | | | | | | |
| High | | | 0 | % | | | | | | | | | | | |
| Net finance lease receivable | | | 100 | % | | | | | | | | | | | |
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| As of September 30, 2014, we determined that we did not have a need for an allowance for uncollectible accounts associated with any of our finance leases, as the customer payment histories with us, associated with these leases, has been positive, with no late payments. |
| The following is a schedule of future minimum rentals on non-cancelable direct financing leases at September 30, 2014: |
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| | Amount | | | | | | | | | | | | |
| Three months ended December 31, 2014 | | | 11,000 | | | | | | | | | | | | |
| Year ended December 31, 2015 | | | 45,000 | | | | | | | | | | | | |
| Year ended December 31, 2016 | | | 45,000 | | | | | | | | | | | | |
| Year ended December 31, 2017 | | | 40,000 | | | | | | | | | | | | |
| Year ended December 31, 2018 | | | 5,000 | | | | | | | | | | | | |
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| | $ | 146,000 | | | | | | | | | | | | |
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| 4. Related Party Transactions |
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| As of September 30, 2014 and 2013, the Company’s related party receivables and payables are short term, unsecured and non-interest bearing. |
| Nine months ended September 30, | | 2014 | | | 2013 | | | |
| Reimbursable expenses | | | | | | | | |
| Reimbursable expenses, which are charged to the partnership by CCC in connection with the administration and operation of the Partnership, are allocated to the Partnership based upon several factors including, but not limited to, the number of investors, compliance issues, and the number of existing leases. For the nine months ended September 30, 2014 and 2013, the Partnership was charged approximately $219,000 and $360,000 in other LP expense, respectively | | $ | 567,000 | | | $ | 662,000 | | | |
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| Equipment acquisition fee | | | | | | | | | | |
| The General Partner earned an equipment acquisition fee of 4% of the purchase price of each item of equipment purchases as compensation for the negotiation of the acquisition of the equipment and lease thereof or sale under a conditional sales contract. As of September 30, 2014, equipment acquisition fees earned on the purchase of both operating and finance leases was approximately $28,000. | | $ | 28,000 | | | $ | 20,000 | | | |
| Equipment liquidation fee | | | | | | | | | |
| Also referred to as a "resale fee." With respect to each item of equipment sold by the general partner, we will pay a fee equal to the lesser of (i) 50% of the competitive equipment sale commission or (ii) three percent of the sales price of the equipment. The payment of this fee is subordinated to the receipt by the limited partners of (i) a return of their capital contributions and a 10% per annum cumulative return, compounded daily, on adjusted capital contributions and (ii) the net disposition proceeds from such sale in accordance with the partnership agreement. Our general partner, based on its experience in the equipment leasing industry and current dealings with others in the industry, uses its business judgment to determine if a given sales commission is competitive, reasonable and customary. Such fee will be reduced to the extent any liquidation or resale fees are paid to unaffiliated parties. During the nine months ended September 30, 2014 and 2013, the General Partner earned but waived approximately $0 and $2,000 of equipment liquidation fees, respectively. | | $ | 9,000 | | | $ | 7,000 | | |
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| Debt placement fee | | | | | | | |
| As compensation for arranging term debt to finance our acquisition of equipment, we will pay the general partner a fee equal to one percent of such indebtedness; provided, however, that such fee shall be reduced to the extent we incur such fees to third parties unaffiliated with the general partner or the lender with respect to such indebtedness. No such fee will be paid with respect to borrowings from the general partner or its affiliates. We intend to initially acquire leases on an all cash basis with the proceeds of this offering, but may borrow funds after the offering proceeds have been invested. The amount we borrow, and therefore the amount of the fee, will depend upon interest rates at the time of a loan, and the amount of leverage we determine is appropriate at the time. We do not intend to use more than 30% leverage overall in our portfolio. Fees will increase as the amount of leverage we use increases, and as turnover in the portfolio increases and additional equipment is purchased using leverage. | | $ | 8,000 | | | $ | 0 |
| Equipment management fee | | | | | | |
| We pay our general partner a monthly fee equal to the lesser of (a) the fees which would be charged by an independent third party in the same geographic market for similar services and equipment or (b) the sum of (i) two percent of gross lease revenues attributable to equipment subject to full payout net leases which contain net lease provisions and (ii) five percent of the gross lease revenues attributable to equipment subject to operating leases. Our general partner, based on its experience in the equipment leasing industry and current dealings with others in the industry, will use its business judgment to determine if a given fee is competitive, reasonable and customary. The amount of the fee will depend upon the amount of equipment we manage, which in turn will depend upon the amount we raise in this offering. Reductions in market rates for similar services would also reduce the amount of this fee we will receive. | | $ | 124,000 | | | $ | 162,000 | |
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