ASC 321-958
Not-for-Profit Entities
321 Investments—Equity Securities
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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.
Key points (7)
- The measurement guidance in Section 958-321-35 applies to all investments in equity securities and other ownership interests, including partnerships, unincorporated joint ventures, and LLCs, as if those interests were equity securities (958-321-15-2).
- Excluded from the Subtopic are equity-method investments and consolidated subsidiaries under 958-810, derivative instruments under Topic 815, short sales of securities, and investments held by a financially interrelated entity (958-321-15-4).
- An entity shall not look through the form of its investment to the nature of the securities held by the investee—a limited partnership interest meeting the definition of an equity security is an equity security even if the partnership holds mostly debt securities (958-321-15-6).
- An equity security acquired by contribution is recognized as an asset and as revenue or gain in the period received (958-321-25-1, referencing 958-605-25-2).
- An equity security is initially measured at acquisition cost excluding brokerage and other transaction fees if purchased, and at fair value if received as a contribution or through an agency transaction (958-321-30-1).
- When an NFP holds an investment as agent with little or no discretion over how income and gains will be used, the acquisition and subsequent investment activities are reported as agency transactions—asset and liability changes rather than changes in net assets (958-321-25-2; 958-321-35-2).
- Equity security excludes convertible debt, mandatorily or investor-redeemable preferred stock, written equity options, and cash-settled options on equity securities or equity-based indexes (958-321-55-1); disclosures follow Sections 958-320-50 and 321-10-50 except paragraph 321-10-50-4 (958-321-50-1 through 50-2).
For students. Exam traps here are the two-track initial measurement rule (cost for purchases, fair value for contributions) and the agency-transaction exception, which keeps investment income out of the statement of activities entirely. Students often wrongly "look through" a partnership interest to the underlying debt securities—958-321-15-6 forbids that.
equity securitynot-for-profit investmentsagency transactioncontributed securitiesacquisition costother ownership interestsno look-through principlechanges in net assets
Machine-generated study aid for ASC 321-958. Check the source paragraphs below.
321-958-00Status
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321-958-00-1
The following table identifies the changes made to this Subtopic.
321-958-05Overview and Background
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321-958-05-1
The Not-for-Profit Entities Topic contains several Subtopics for investments held by not-for-profit entities (NFPs) because the guidance differs by form of the investment. The Subtopics are:
- aFinancially Interrelated Entities
- bInvestments—Debt Securities
- cInvestments—Equity Securities
- dInvestments—Other
- eConsolidation.
321-958-05-2
This Subtopic establishes incremental standards of financial accounting and reporting for investments in equity securities held by NFPs. Topic 321 establishes standards of financial accounting and reporting for investments in equity securities and other ownership interests in an entity.
321-958-15Scope and Scope Exceptions
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Overall Guidance
321-958-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic; see Section 958-10-15, with specific exceptions noted below.
Instruments
321-958-15-2
The measurement guidance in Section 958-321-35 applies to all investments in equity securities and other ownership interests in an entity, including investments in partnerships, unincorporated joint ventures, and limited liability companies as if those other ownership interests are equity securities.
321-958-15-3
The reporting guidance in Sections 958-220-45 and 958-320-50 applies to all investments held by not-for-profit entities (NFPs), except those described in paragraph 958-321-15-4.
321-958-15-4
The guidance in this Subtopic does not apply to any of the following:
- a An investment in equity securities that the investor accounts for under the equity method in accordance with paragraph 958-810-15-4.
- b An investment in a subsidiary that the investor consolidates in accordance with paragraph 958-810-15-4 or .
- c An investment in a derivative instrument that is subject to the requirements of Topic 815. That is, an investment in an option on securities shall be accounted for under the requirements of Subtopic 815-10 if the option meets the definition of a derivative instrument, including the criteria for net settlement in paragraph 815-10-15-99.
- d Short sales of securities (sales of securities that the seller does not own at the time of sale), because they are obligations to deliver securities, not investments. Short-sale obligations are addressed in the guidance for certain industries (see paragraph 940-320-35-1 with respect to broker-dealers and paragraph 942-405-35-1 with respect to depository institutions). For guidance on evaluating whether a short-sale transaction involves a derivative instrument, see paragraph 815-10-55-57.
- e Investments held by a financially interrelated entity. See Subtopic 958-20 for reporting interests in the net assets of a financially interrelated entity.
321-958-15-5
If an investment otherwise would be in the scope of this Subtopic and it has within it an embedded derivative that is subject to the requirements of Topic 815, the host contract (as described in paragraph 815-15-05-1) remains within the scope of this Subtopic.
321-958-15-6
In determining whether an instrument is within the scope of this Subtopic, an entity shall not look through the form of its investment to the nature of the securities held by an investee. For example, an entity invests in a limited partnership interest (or a venture capital entity) that meets the definition of an equity security. However, substantially all of the partnership's assets consist of investments in debt securities. In the specific situation described, the investment would be considered an equity security.
Other Considerations
321-958-15-7
This Subtopic does not specify methods to be used for measuring the amount of dividend income.
321-958-25Recognition
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321-958-25-1
In accordance with paragraph 958-605-25-2, if an equity security is acquired by contribution, it shall be recognized as an asset and as a revenue or gain in the period received.
321-958-25-2
If a not-for-profit entity (NFP) is holding an investment as an agent and has little or no discretion in determining how the investment income, unrealized gains and losses, and realized gains and losses resulting from that investment will be used, the investment's acquisition shall be reported as an agency transaction. That is, the NFP agent recognizes the acquisition as an asset and a liability rather than as a change in net assets.
321-958-30Initial Measurement
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321-958-30-1
An equity security shall be initially measured at its acquisition cost (excluding brokerage and other transaction fees) if it is purchased. It shall be initially measured at fair value if it is received as a contribution or through an agency transaction.
321-958-35Subsequent Measurement
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321-958-35-1
Topic 321 provides guidance in subsequent measurement of equity securities.
Investments Held as an Agent
321-958-35-2
If a not-for-profit entity (NFP) is holding an investment as an agent and has little or no discretion in determining how the investment income, unrealized gains and losses, and realized gains and losses resulting from that investment will be used, those investment activities shall be reported as agency transactions and, therefore, as changes in assets and liabilities, rather than as changes in net assets.
321-958-50Disclosure
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321-958-50-1
The disclosure guidance in Section 958-320-50 applies to investments in equity securities and investment return generated by equity securities held by not-for-profit entities (NFPs).
321-958-50-2
The disclosure guidance in Section 321-10-50, except for paragraph 321-10-50-4, applies to investments in equity securities held by NFPs.
321-958-55Implementation Guidance and Illustrations
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Implementation Guidance
321-958-55-1
The term equity security does not include any of the following securities:
- aConvertible debt
- bPreferred stock that by its terms either must be redeemed by the issuing entity or is redeemable at the option of the investor
- cWritten equity options because they represent obligations of the writer, not investments
- dCash-settled options on equity securities or options on equity-based indexes, because those instruments do not represent ownership interests in an entity.
Related subtopics
- 320-958 Not-for-Profit EntitiesInvestments—Debt Securities
- 321-10 OverallInvestments—Equity Securities
- 325-958 Not-for-Profit EntitiesInvestments—Other
- 323-946 Financial Services—Investment CompaniesInvestments—Equity Method and Joint Ventures
- 323-30 Partnerships, Joint Ventures, and Limited Liability EntitiesInvestments—Equity Method and Joint Ventures
- 325-940 Financial Services—Brokers and DealersInvestments—Other