Investments—Equity Securities

ASC 321 sets the default accounting for equity securities and other ownership interests (partnership, joint venture, and LLC interests) that are not consolidated, not equity-method, and not derivatives: measure at fair value on the balance sheet with all unrealized holding gains and losses and dividend income recognized in earnings (321-10-35-1, 35-6)—there is no available-for-sale/OCI category for equity securities. For equity securities without a readily determinable fair value that do not qualify for the NAV practical expedient, an entity may elect, investment by investment, the measurement alternative of cost minus impairment adjusted for observable price changes in orderly transactions of the same issuer (321-10-35-2), with a one-step qualitative impairment assessment each period (321-10-35-3 through 35-4) and an irrevocable later election to fair value. ASC 958-321 layers not-for-profit-specific rules on top: purchased equity securities are initially measured at acquisition cost excluding brokerage and transaction fees, contributed or agency-received securities at fair value (958-321-30-1), and investments held as agent with little or no discretion are reported as agency transactions rather than changes in net assets. A recurring theme is that an entity does not look through the form of the investment to the investee's underlying assets (321-10-55-6 through 55-7; 958-321-15-6).

Subtopics

1. 10Overall35 ¶

   ASC 321-10 governs the accounting for investments in equity securities and other ownership interests (partnerships, unincorporated joint ventures, LLCs) that are not consolidated, not accounted for under the equity method, and not derivatives. The default rule is fair value measurement in the balance sheet with all unrealized holding gains and losses (and dividend income) recognized in earnings (321-10-35-1, 35-6). As an alternative, an entity may elect, investment by investment, a "measurement alternative" for an equity security without a readily determinable fair value: cost minus impairment, adjusted up or down for observable price changes in orderly transactions for identical or similar investments of the same issuer (321-10-35-2).

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2. 958Not-for-Profit Entities18 ¶

   This subtopic (codified as 958-321) sets the incremental rules for how not-for-profit entities account for investments in equity securities and other ownership interests, layering on top of the general guidance in Topic 321. Equity securities purchased are initially measured at acquisition cost excluding brokerage and transaction fees; those received as contributions or through agency transactions are initially measured at fair value, with subsequent measurement following Topic 321. Investments held by an NFP as agent with little or no discretion over use of the income and gains are reported as agency transactions—changes in assets and liabilities, not changes in net assets.

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