# ASC 260-10-05: Earnings Per Share — Overall — 05 Overview and Background Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/260/10/#05-overview-and-background) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-09T23:18:45.856Z to 2026-09-09T23:18:45.856Z Record version: sha256:02b011f0a2025efb33852bd8f2a882a24ba88e2e424cbfa26cba00f5b11414ca Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 260-10-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/260/10/#05-overview-and-background) SEC content: no ##### [260-10-05-1](https://asc.understandingaccounting.org/asc/260/10/#260-10-05-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:18:45.856Z to 2026-09-09T23:18:45.856Z Record version: sha256:a374b1e4f78469707e6031e7fab19d74d08d46338fef9f59ee42481da01dec5a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The [Earnings Per Share](https://asc.understandingaccounting.org/glossary/e/#earnings-per-share "The amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share.") Topic contains only the Overall Subtopic. The Overall Subtopic specifies the computation, presentation, and disclosure requirements for earnings per share (EPS) for entities with publicly held [common stock](https://asc.understandingaccounting.org/glossary/c/#common-stock "A stock that is subordinate to all other stock of the issuer. Also called common shares.") or [potential common stock](https://asc.understandingaccounting.org/glossary/p/#potential-common-stock "A security or other contract that may entitle its holder to obtain common stock during the reporting period or after the end of the reporting period.").Computation of EPS is included in Section 260-10-55. ##### [260-10-05-1A](https://asc.understandingaccounting.org/asc/260/10/#260-10-05-1A) Pending content: no Source downloaded (UTC): 2026-09-09T23:18:45.856Z to 2026-09-09T23:18:45.856Z Record version: sha256:4097f5315a7c839719111af39a984b7cf60effb25d385f69f36620585849d739 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may issue a freestanding [financial instrument](https://asc.understandingaccounting.org/glossary/f/#financial-instrument "Cash, evidence of an ownership interest in an entity, or a contract that both: Imposes on one entity a contractual obligation either: To deliver cash or another financial instrument to a second entity To exchange other financial instruments on potentially unfavorable terms with the second entity. Conveys to that second entity a contractual right either: To receive cash or another financial instrument from the first entity To exchange other financial instruments on potentially favorable terms with the first entity. The use of the term financial instrument in this definition is recursive (because the term financial instrument is included in it), though it is not circular. The definition requires a chain of contractual obligations that ends with the delivery of cash or an ownership interest in an entity. Any number of obligations to deliver financial instruments can be links in a chain that qualifies a particular contract as a financial instrument. Contractual rights and contractual obligations encompass both those that are conditioned on the occurrence of a specified event and those that are not. All contractual rights (contractual obligations) that are financial instruments meet the definition of asset (liability) set forth in FASB Concepts Statement No. 6, Elements of Financial Statements, although some may not be recognized as assets (liabilities) in financial statements—that is, they may be off-balance-sheet—because they fail to meet some other criterion for recognition. For some financial instruments, the right is held by or the obligation is due from (or the obligation is owed to or by) a group of entities rather than a single entity. (P) December 16, 2024; (N) December 16, 2025105-10-65-9Cash, evidence of an ownership interest in an entity, or a contract that both: Imposes on one entity a contractual obligation either: To deliver cash or another financial instrument to a second entity To exchange other financial instruments on potentially unfavorable terms with the second entity. Conveys to that second entity a contractual right either: To receive cash or another financial instrument from the first entity To exchange other financial instruments on potentially favorable terms with the first entity. The use of the term financial instrument in this definition is recursive (because the term financial instrument is included in it), though it is not circular. The definition requires a chain of contractual obligations that ends with the delivery of cash or an ownership interest in an entity. Any number of obligations to deliver financial instruments can be links in a chain that qualifies a particular contract as a financial instrument. Contractual rights and contractual obligations encompass both those that are conditioned on the occurrence of a specified event and those that are not. Some contractual rights (contractual obligations) that are financial instruments may not be recognized in financial statements—that is, they may be off-balance-sheet—because they fail to meet some other criterion for recognition. For some financial instruments, the right is held by or the obligation is due from (or the obligation is owed to or by) a group of entities rather than a single entity.") (for example, a warrant) with a [down round feature](https://asc.understandingaccounting.org/glossary/d/#down-round-feature "A feature in a financial instrument that reduces the strike price of an issued financial instrument if the issuer sells shares of its stock for an amount less than the currently stated strike price of the issued financial instrument or issues an equity-linked financial instrument with a strike price below the currently stated strike price of the issued financial instrument. A down round feature may reduce the strike price of a financial instrument to the current issuance price, or the reduction may be limited by a floor or on the basis of a formula that results in a price that is at a discount to the original exercise price but above the new issuance price of the shares, or may reduce the strike price to below the current issuance price. A standard antidilution provision is not considered a down round feature.") that is classified in equity. This Subtopic provides guidance on earnings per share and recognition and measurement of the effect of a down round feature when it is triggered. ### Master Limited Partnerships ##### [260-10-05-2](https://asc.understandingaccounting.org/asc/260/10/#260-10-05-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:18:45.856Z to 2026-09-09T23:18:45.856Z Record version: sha256:7d4aa379bc78829344ae890a91d1b6a417c0d925fcfc23666cb04d4f88a5ab4c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Master Limited Partnerships Subsections clarify the application of the General Subsection of the Other Presentation Matters Subtopic to master limited partnerships. ##### [260-10-05-3](https://asc.understandingaccounting.org/asc/260/10/#260-10-05-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:18:45.856Z to 2026-09-09T23:18:45.856Z Record version: sha256:1fba8a6949e1ecaf51736bdf9788bc7e631d3c4ca4a557d6986840adcb2ffee3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Publicly traded master limited partnerships often issue multiple classes of securities that may participate in partnership distributions according to a formula specified in the partnership agreement. A typical master limited partnership consists of publicly traded common units held by limited partners, a general partner interest, and incentive distribution rights. Depending on the structure of the master limited partnership, the incentive distribution rights may be a separate class of nonvoting limited partner interest that the general partner initially holds but generally may transfer or sell apart from its overall interest. Alternatively, the incentive distribution rights may be embedded in the general partner interest such that they cannot be detached and transferred apart from the general partner's overall interest. ##### [260-10-05-4](https://asc.understandingaccounting.org/asc/260/10/#260-10-05-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:18:45.856Z to 2026-09-09T23:18:45.856Z Record version: sha256:28ea1ec0dcbfdd22d755c9d4a11afdd9bd62966e10f963e2e873de31085048e5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Generally, the partnership agreement obligates the general partner to distribute 100 percent of the partnership's available cash (as defined in the partnership agreement) at the end of each reporting period to the general partner and limited partners via a distribution waterfall (that is, a schedule that prescribes distributions to the general partner and limited partners at each threshold) within a contractually determined period of time following the end of a reporting period. When certain thresholds are met, the distribution waterfall further allocates available cash to the holder of the separate class of nonvoting limited partner interest (the incentive distribution right holder) or, when the incentive distribution right is embedded in the general partner interest, to the general partner. The net income (or loss) of the partnership is allocated to the capital accounts of the general partner and limited partners based on their respective sharing of income or losses specified in the partnership agreement, but only after taking into account any priority income allocations resulting from incentive distributions. ##### [260-10-05-5](https://asc.understandingaccounting.org/asc/260/10/#260-10-05-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:18:45.856Z to 2026-09-09T23:18:45.856Z Record version: sha256:a38c173a2d105fe924a4547b971171234828c642d8d4284ce578bcb68c8b2039 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraphs [260-10-45-59A through 45-70](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-59A) address the use of the two-class method to calculate earnings per unit for capital structures that are not convertible into a class of common stock.