# ASC 320-10-25: Investments—Debt Securities — Overall — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/320/10/#25-recognition) 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): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:5bea14e5ee650f2a9638eec274e4f20239443a4958df56d1a63bbc0b21c296d2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 320-10-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/320/10/#25-recognition) SEC content: no #### Classification of Debt Securities ##### [320-10-25-1](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:7eb431fac6c6a1cca6d059847f7571580f2d509d931eee5697d16d1d4d8936fe Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At acquisition, an entity shall classify [debt securities](https://asc.understandingaccounting.org/glossary/d/#debt-security "Any security representing a creditor relationship with an entity. The term debt security also includes all of the following: Preferred stock that by its terms either must be redeemed by the issuing entity or is redeemable at the option of the investor A collateralized mortgage obligation (or other instrument) that is issued in equity form but is required to be accounted for as a nonequity instrument regardless of how that instrument is classified (that is, whether equity or debt) in the issuer's statement of financial position U.S. Treasury securities U.S. government agency securities Municipal securities Corporate bonds Convertible debt Commercial paper All securitized debt instruments, such as collateralized mortgage obligations and real estate mortgage investment conduits Interest-only and principal-only strips. The term debt security excludes all of the following: Option contracts Financial futures contracts Forward contracts Lease contracts Receivables that do not meet the definition of security and, so, are not debt securities, for example: Trade accounts receivable arising from sales on credit by industrial or commercial entities Loans receivable arising from consumer, commercial, and real estate lending activities of financial institutions.") into one of the following three categories: 1. a [Trading securities](https://asc.understandingaccounting.org/glossary/t/#trading-securities "Securities that are bought and held principally for the purpose of selling them in the near term and therefore held for only a short period of time. Trading generally reflects active and frequent buying and selling, and trading securities are generally used with the objective of generating profits on short-term differences in price."). If a [security](https://asc.understandingaccounting.org/glossary/s/#security "A share, participation, or other interest in property or in an entity of the issuer or an obligation of the issuer that has all of the following characteristics: It is either represented by an instrument issued in bearer or registered form or, if not represented by an instrument, is registered in books maintained to record transfers by or on behalf of the issuer. It is of a type commonly dealt in on securities exchanges or markets or, when represented by an instrument, is commonly recognized in any area in which it is issued or dealt in as a medium for investment. It either is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations.") is acquired with the intent of selling it within hours or days, the security shall be classified as [trading](https://asc.understandingaccounting.org/glossary/t/#trading "An activity involving securities sold in the near term and held for only a short period of time. The term trading contemplates a holding period generally measured in hours and days rather than months or years. See paragraph 948-310-40-1 for clarification of the term trading for a mortgage banking entity."). However, at acquisition an entity is not precluded from classifying as trading a security it plans to hold for a longer period. Classification of a security as trading shall not be precluded simply because the entity does not intend to sell it in the near term. 2. b [Available-for-sale securities](https://asc.understandingaccounting.org/glossary/a/#available-for-sale-securities "Investments not classified as either trading securities or as held-to-maturity securities."). Investments in debt securities not classified as trading securities or as held-to-maturity securities shall be classified as available-for-sale securities. 3. c Held-to-maturity securities. Investments in debt securities shall be classified as held-to-maturity only if the reporting entity has the positive intent and ability to hold those securities to maturity. ##### [320-10-25-2](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:01d9e541888b075ebad9e641e6f800d06997f3fa2e2422735dca2bd9e2037fc4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At acquisition, an investor shall document the classification of debt securities. #### Restrictions on Classification of a Debt Security as Held-to-Maturity ##### [320-10-25-3](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:f95d4ba6c9c0aff5f3c5a33f7d6cfbd2d1ee95584d4779b42214a6c00561a3c7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Amortized cost is relevant only if a security is actually held to maturity. Use of the held-to-maturity category is restrictive because the use of amortized cost must be justified for each investment in a debt security. At acquisition, an entity shall determine if it has the positive intent and ability to hold a security to maturity, which is distinct from the mere absence of an intent to sell. If management's intention to hold a debt security to maturity is uncertain, it is not appropriate to carry that investment at amortized cost. In establishing intent, an entity shall consider pertinent historical experience, such as sales and transfers of debt securities classified as held-to-maturity. A pattern of sales or transfers of those securities is inconsistent with an expressed current intent to hold similar debt securities to maturity. ##### [320-10-25-4](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:0ca04512c6e5f6d4125495178d6142a21f2115181592cdeabadbadecf7ea0013 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall not classify a debt security as held-to-maturity if the entity has the intent to hold the security for only an indefinite period. Consequently, a debt security shall not, for example, be classified as held-to-maturity if the entity anticipates that the security would be available to be sold in response to any of the following circumstances: 1. a Changes in market interest rates and related changes in the security's prepayment risk 2. b Needs for liquidity (for example, due to the withdrawal of deposits, increased demand for loans, surrender of insurance policies, or payment of insurance claims) 3. c Changes in the availability of and the yield on alternative investments 4. d Changes in funding sources and terms 5. e Changes in foreign currency risk. ##### [320-10-25-5](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:2fbd8eeb37eebb96b0adaf135253fb17e45352b98ade197487180a28a9a547c9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Specific scenarios in which a debt security shall not be classified as held-to-maturity (or where sale or transfer of a held-to-maturity security will call into question an investor's stated intent to hold other debt securities to maturity in the future) are as follows: 1. a A security shall not be classified as held-to-maturity if that security can contractually be prepaid or otherwise settled in such a way that the holder of the security would not recover substantially all of its recorded investment. The justification for using historical-cost-based measurement for debt securities classified as held-to-maturity is that no matter how market interest rates fluctuate, the holder will recover its recorded investment and thus realize no gains or losses when the issuer pays the amount promised at maturity. However, that justification does not extend to receivables purchased at a substantial premium over the amount at which they can be prepaid, and it does not apply to instruments whose payments derive from prepayable receivables but have no principal balance. Therefore, a callable debt security purchased at a significant premium might be precluded from held-to-maturity classification under paragraph [860-20-35-2](https://asc.understandingaccounting.org/asc/860/20/#860-20-35-2) if it can be prepaid or otherwise settled in such a way that the holder of the security would not recover substantially all of its recorded investment. In addition, a mortgage-backed interest-only certificate shall not be classified as held-to-maturity. Paragraphs [860-20-35-3 through 35-6](https://asc.understandingaccounting.org/asc/860/20/#860-20-35-3) provide further guidance on application of this paragraph. Note that a debt security that is purchased late enough in its life such that, even if it was prepaid, the holder would recover substantially all of its recorded investment, could be initially classified as held-to-maturity if the conditions of this paragraph and paragraph [320-10-25-1](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-1) are met. (A debt security that can contractually be prepaid or otherwise settled in such a way that the holder of the security would not recover substantially all of its recorded investment may contain an embedded derivative. Therefore, such a security should be evaluated in accordance with Subtopic 815-15 to determine whether it contains an embedded derivative that needs to be accounted for separately.) 2. b A debt security that is available to be sold in response to changes in market interest rates, changes in the security's prepayment risk, the entity's need for liquidity, changes in foreign exchange risk, or other similar factors shall not be included in the held-to-maturity category because the possibility of a sale is indicative that the entity does not have a positive intent and ability to hold the security to maturity. A debt security that is considered available to be sold as part of an entity's asset-liability management activities shall not be classified as held-to-maturity. Similarly, an entity that maintains a dynamic hedging program in which changes in external factors require that certain securities be sold to maintain an effective hedge would not have the intent and ability to hold those securities to maturity. 3. c Securities that may need to be sold to implement tax-planning strategies (for example, to generate taxable gains to offset existing taxable losses—or vice versa—or in response to changes in the entity's anticipated future profitability—for example, if taxable losses were expected for the next several years) should be classified as available-for-sale, not held-to-maturity. 4. d The sale of a held-to-maturity security in advance of any deterioration in the creditworthiness of the issuer, perhaps based solely on industry statistics, will call into question an investor's stated intent to hold other debt securities to maturity in the future. The sale of a held-to-maturity security must be in response to an actual deterioration, not mere speculation. That deterioration shall be supported by evidence about the issuer's creditworthiness; however, the entity need not await an actual downgrading in the issuer's published credit rating or inclusion on a credit watch list. 5. e The sale of held-to-maturity securities to meet regulatory capital requirements will call into question an investor's stated intent to hold other debt securities to maturity in the future. An entity's ability and intent to hold securities to maturity would be called into question by the sale of held-to-maturity securities to realize gains to replenish regulatory capital that had been reduced by a provision for loan losses. Gains trading with held-to-maturity securities to meet an entity's capital requirements is inconsistent with the held-to-maturity notion. 6. f The exercise of a put option on a security classified as held-to-maturity will call into question an investor's stated intent to hold other debt securities to maturity in the future. Furthermore, a puttable debt security might be precluded from held-to-maturity classification pursuant to paragraph [860-20-35-2](https://asc.understandingaccounting.org/asc/860/20/#860-20-35-2). 7. g Convertible debt securities shall not be classified as held-to-maturity. Classifying a security as held-to-maturity means that the entity is indifferent to future opportunities to profit from changes in the security's [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") and intends to accept the debt security's stipulated contractual cash flows, including the repayment of principal at maturity. Convertible debt securities generally bear a lower interest rate because the investor hopes to benefit from appreciation in value of the option embedded in the debt security. Given the unique opportunities for profit embedded in a convertible security, it generally would be contradictory to assert the positive intent and ability to hold a convertible debt security to maturity and forego the opportunity to exercise the conversion feature. The exercise of a conversion feature on a security classified as held-to-maturity will call into question an investor's stated intent to hold other debt securities to maturity in the future. (See Section 815-15-25 for additional guidance. If convertible debt is bifurcated into an equity option and a host debt instrument under the requirements of Subtopic 815-15, it generally still would be contradictory to assert the positive intent and ability to hold the debt host contract to maturity and forego the opportunity to exercise the conversion feature.) 8. h A documented policy to initially classify all debt securities as held-to-maturity but then automatically transfer every security to available-for-sale when it reaches a predetermined point before maturity (for example, every held-to-maturity security will be transferred to available-for-sale 24 months prior to its stated maturity) so that an entity has the flexibility to sell securities is not consistent with the held-to-maturity classification. Under the policy described, the entity does not intend to hold any security to maturity. 9. i An insurance entity or other regulated entity shall not classify securities as held-to-maturity and also indicate to regulators that those securities could be sold to meet liquidity needs in a defined interest rate scenario whose likelihood of occurrence is reasonably possible but not probable. ##### [320-10-25-6](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:88eddcf654fbd33eed9e1affaf89263b42924c3a0435f2d412e841c4b7bd1d67 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following changes in circumstances may cause the entity to change its intent to hold a certain security to maturity without calling into question its intent to hold other debt securities to maturity in the future. The sale or transfer of a held-to-maturity security due to one of the following changes in circumstances shall not be considered inconsistent with its original classification: 1. a Evidence of a significant deterioration in the issuer's creditworthiness (for example, a downgrading of an issuer's published credit rating) 2. b A change in tax law that eliminates or reduces the tax-exempt status of interest on the debt security (but not a change in tax law that revises the marginal tax rates applicable to interest income) 3. c A major business combination or major disposition (such as sale of a [component of an entity](https://asc.understandingaccounting.org/glossary/c/#component-of-an-entity "A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. A component of an entity may be a reportable segment or an operating segment, a reporting unit, a subsidiary, or an asset group.")) that necessitates the sale or transfer of held-to-maturity securities to maintain the entity's existing interest rate risk position or credit risk policy 4. d A change in statutory or regulatory requirements significantly modifying either what constitutes a permissible investment or the maximum level of investments in certain kinds of securities, thereby causing an entity to dispose of a held-to-maturity security 5. e A significant increase by the regulator in the industry's capital requirements that causes the entity to downsize by selling held-to-maturity securities 6. f A significant increase in the risk weights of debt securities used for regulatory risk-based capital purposes. ##### [320-10-25-7](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:0256e9afa292bf94c1fbb47d475f86615e012af0116fe02e653b248e78fbd5d6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. It is not appropriate to analogize to the exceptions specified in (a) through (f) in the preceding paragraph. ##### [320-10-25-8](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:7b48bf338dce1c531be6e39952e4d7421e884e8e978dc93af08768bb959535d4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a regulator directs a particular institution (rather than all institutions supervised by that regulator) to sell or transfer held-to-maturity securities (for example, to increase liquid assets), those sales or transfers are not consistent with paragraph [320-10-25-6(d)](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-6), which describes a change in regulations applicable to all entities affected by the legislation or regulator enacting the change. (The same is true of paragraph [320-10-25-6(e) through (f)](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-6).) However, it is possible that the circumstances causing a regulator to direct an institution to sell securities could be considered an event that is isolated, nonrecurring, and unusual that could not have been reasonably anticipated as described in the following paragraph and paragraph [320-10-25-6](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-6). ##### [320-10-25-9](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-9) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:51363061e8fa7eb672a6fb28e3c036530fbeee49a473fbf873aa3bedba1e3e04 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In addition to the changes in circumstances listed in paragraph [320-10-25-6(a) through (f)](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-6), certain other events may cause the entity to sell or transfer a held-to-maturity security without necessarily calling into question (tainting) its intent to hold other debt securities to maturity. Such events must meet all of the following four conditions to avoid tainting its intent to hold other debt securities to maturity in the future: 1. a The event is isolated. 2. b The event is nonrecurring. 3. c The event is unusual for the reporting entity. 4. d The event could not have been reasonably anticipated. ##### [320-10-25-10](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-10) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:e49a53ec31a7e8faff258c27057b43e7cd206ef25f3239bd34a4a28430863576 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Other than extremely remote disaster scenarios (such as a run on a bank or an insurance entity), very few events would meet all four of those conditions. ##### [320-10-25-11](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-11) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:edb039d3781ed34d9b8b4f999ff3f29c46a365732f767aa2f5dfd2a14a5225d7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Extremely remote disaster scenarios shall not be anticipated by an entity in deciding whether it has the positive intent and ability to hold a debt security to maturity. ##### [320-10-25-12](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-12) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:3e8563fedf8ca21b783f1aa722c3cb070f4b7e6ca64c6a8c775020126ecccf0a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. With respect to the discussion in paragraph [320-10-25-6(c)](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-6) about a major business combination or a major disposition, this Subtopic does not specify a quantitative threshold for a major business combination or disposition. Examples of transactions that would qualify for the exception in paragraph [320-10-25-6(c)](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-6) are as follows: 1. a Sales of held-to-maturity securities only when the combination or disposition necessitates the sale or transfer of held-to-maturity securities to maintain the entity's existing interest rate risk position or credit risk policy. Necessary transfers or sales shall occur concurrent with or shortly after the business combination or disposition. This Subtopic does not define shortly. As time passes, however, it is increasingly difficult to demonstrate that the business combination, and not other events or circumstances, necessitated the transfer or sale of held-to-maturity securities. 2. b A sale of a component of an entity is an example of a major disposition. ##### [320-10-25-13](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-13) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:78f526f9f6d5cb8ddf42539cf479568f1752c9b0963496fd408cfadf69254bca Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples of transactions that would not qualify for the exception in paragraph [320-10-25-6(c)](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-6) are as follows: 1. a A purchase or sale of a large pool of financial assets (for example, conforming mortgages) or liabilities (for example, deposit liabilities) (which would not be considered a major business combination or disposition) 2. b Sales of held-to-maturity securities to fund an acquisition (or a disposition, for example, if deposit liabilities are being assumed by the other party) 3. c Sales of held-to-maturity securities in anticipation of or otherwise before a major business combination or disposition 4. d A sale of held-to-maturity securities in response to an unsolicited tender offer from the issuer (which also is not an event that is isolated, nonrecurring, and unusual that could not have been reasonably anticipated). ##### [320-10-25-14](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-14) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:8dd83ad9451acb2b1d27641beb919150ca06d987f6ccb3f259f3c7d5192fa887 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Sales of debt securities that meet either of the following conditions may be considered as maturities for purposes of the classification of securities and the disclosure requirements under this Subtopic: 1. a The sale of a security occurs near enough to its maturity date (or call date if exercise of the call is probable) that interest rate risk is substantially eliminated as a pricing factor. That is, the date of sale is so near the maturity or call date (for example, within three months) that changes in market interest rates would not have a significant effect on the security's fair value. 2. b The sale of a security occurs after the entity has already collected a substantial portion (at least 85 percent) of the principal outstanding at acquisition due either to prepayments on the debt security or to scheduled payments on a debt security payable in equal installments (both principal and interest) over its term. For variable-rate securities, the scheduled payments need not be equal. ##### [320-10-25-15](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-15) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:c55ef7d6a4591b22a087356a9c83dcbcb627d8907ae4899cc4eae7243cb9248d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Selling a debt security after a substantial portion of the principal has been collected shall be considered equivalent to holding the security to maturity. The collection of 85 percent of the principal outstanding at acquisition (not the principal outstanding at issuance for securities purchased in the secondary market) constitutes a reasonable threshold of what represents a substantial portion of the principal. ##### [320-10-25-16](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-16) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:d5f88ec1ce54a5f1a228ba5f98e63dad5e1330f200e0d1185cf8233425208fa5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The limited practical exception in the preceding paragraph applies to both of the following: 1. a Debt securities that are payable in equal installments that comprise both principal and interest, such as certain level-payment mortgage-backed securities. For example, many banks routinely sell their investments in mortgage-backed securities after a substantial portion of the principal has been recovered through prepayments. The tail portion of a mortgage-backed security is sold because it no longer represents an efficient investment to the entity mainly due to the economic costs of accounting for remnants of the original issue. 2. b Variable-rate debt securities when the scheduled payments would be payable in equal installments absent a change in interest rates. ##### [320-10-25-17](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-17) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:20357a63846b84cdde4e92b7a55c9703809f3d49ae09f97346f7640582675569 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. It is not appropriate to apply the limited practical exception in paragraph [320-10-25-15](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-15) by analogy to a debt security that has a contractual payment schedule of level principal payments plus interest that accrues based on the declining outstanding principal balance; the payments on that type of security do not represent equal installments that are made up of both principal and interest. ##### [320-10-25-18](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-18) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:761a3181e151378de5aab056e9cdfe5037a48d3ffdd4b5f058baae69b6b0b5ec Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Specific scenarios in which a debt security may be classified as held to maturity (or where sale or transfer of a held-to-maturity security will not call into question an investor's stated intent to hold other debt securities to maturity in the future) are as follows: 1. a Although its asset-liability management may encompass consideration of the maturity and repricing characteristics of all investments in debt securities, an entity may decide that it can accomplish the necessary adjustments under its asset-liability management without having all of its debt securities available for disposition. In that case, the entity may choose to designate certain debt securities as unavailable to be sold to accomplish those ongoing adjustments deemed necessary under its asset-liability management, thereby enabling those debt securities to be accounted for at amortized cost on the basis of a positive intent and ability to hold them to maturity. 2. b The sale of one or more held-to-maturity securities if an entity chooses to downsize to comply with a significant increase in the industry's capital requirements would not call into question the classification of other held-to-maturity securities. 3. c In some circumstances it may not be possible to hold a security to its original stated maturity, such as when the security is called by the issuer before maturity. The issuer's exercise of the call option effectively accelerates the security's maturity and shall not be viewed as inconsistent with classification in the held-to-maturity category. 4. d A puttable debt security shall be classified as held-to-maturity only if the entity has the positive intent and ability to hold it to maturity. 5. e If a transfer of a held-to-maturity debt security is accounted for as a sale under Subtopic 860-20 and it is transferred for a reason other than those specified in paragraphs [320-10-25-6](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-6), [320-10-25-9](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-9), and [320-10-25-14](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-14), then the transfer would taint the held-to-maturity portfolio. However, if the transfer is accounted for as a secured borrowing, then the transfer would not taint the held-to-maturity portfolio. Transactions involving held-to-maturity securities that are not accounted for as sales under Subtopic 860-20 would not contradict an entity's stated intent to hold a security to maturity and, therefore, do not call into question the entity's intent to hold other debt securities to maturity. Examples of such transactions are as follows: 1. 1 Held-to-maturity securities pledged as collateral, provided that the transaction is not accounted for as a sale under Subtopic 860-20 and the entity intends and expects to be able to satisfy the obligation and recover access to its collateral 2. 2 Held-to-maturity securities subject to a repurchase agreement or a securities lending agreement, provided that the transaction is accounted for as a secured borrowing under Subtopic 860-20 and the entity intends and expects to be able to repay the borrowing 3. 3 Beneficial interests classified as held-to-maturity that are desecuritized in a transaction that is not accounted for as a sale if the financial assets received in or that continue to be held after the desecuritization are held to maturity. Unless the debt instrument received or retained as a result of the transaction is held to maturity, the transaction would call into question the entity's intent to hold other debt securities to maturity. Desecuritizations are not specifically included within the scope of this paragraph. Nevertheless, that guidance is also appropriate for desecuritizations that are not accounted for as sales. #### Combinations of Structured Notes ##### [320-10-25-19](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-19) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:19c28c22fbd6c01fe8d4087c4b2b777709467e316c59cdab21ef2c719161e9d4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following guidance discusses a specific type of transaction in which [structured note](https://asc.understandingaccounting.org/glossary/s/#structured-note "A debt instrument whose cash flows are linked to the movement in one or more indexes, interest rates, foreign exchange rates, commodities prices, prepayment rates, or other market variables. Structured notes are issued by U.S. government-sponsored enterprises, multilateral development banks, municipalities, and private entities. The notes typically contain embedded (but not separable or detachable) forward components or option components such as caps, calls, and floors. Contractual cash flows for principal, interest, or both can vary in amount and timing throughout the life of the note based on nontraditional indexes or nontraditional uses of traditional interest rates or indexes.") securities are issued in combination with other structured note securities as a unit or a pair for the purpose of achieving a certain strategic investment result for the investor. One strategy involves the purchase of two structured notes with opposite interest rate reset provisions. Under that strategy, the fixed coupon rate or maturity date for each structured note would be determined shortly after issuance depending on movements in market interest rates. Following that reset date, the resulting yields on each of the structured note securities will move in opposite directions; however, the average yield of the two securities will generally reflect the market yield of the combined instruments in effect on the issuance date. See Example 2 (paragraph [320-10-55-20](https://asc.understandingaccounting.org/asc/320/10/#320-10-55-20)) for a common example of this strategy and of how the structured note transactions can be used to achieve one of many desired accounting results. ##### [320-10-25-20](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-20) Pending content: no Source downloaded (UTC): 2026-09-09T23:34:48.597Z to 2026-09-09T23:34:48.597Z Record version: sha256:0808d9f39af147f25bb6c06e58ccd08d9914c0fdf26afad304f7324f307d8475 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If structured notes are acquired for the type of specified investment strategy described in paragraph [320-10-25-19](https://asc.understandingaccounting.org/asc/320/10/#320-10-25-19), then the investor shall account for the two structured note securities as a unit until one of the securities is sold, at which time the notes shall be measured in the same way as a participating interest in paragraph [860-20-40-1A](https://asc.understandingaccounting.org/asc/860/20/#860-20-40-1A).