# ASC Topic 323: Investments—Equity Method and Joint Ventures Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/323/) 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): 2026-09-09T23:39:45.959Z to 2026-09-09T23:43:16.668Z Record version: sha256:8081111ebac558e29ea5ce911373e8c54dca4334bd95d9b6849086bc69610cff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## Machine-generated topic summary ASC 323 (Investments—Equity Method and Joint Ventures) sets out when and how an investor that has significant influence—but not control—over an investee reports that interest on a one-line basis: initially at cost and thereafter adjusted for its share of investee earnings, losses, dividends and OCI, with intra-entity profit elimination, basis-difference amortization, loss recognition limited to the carrying amount, and other-than-temporary impairment (323-10). The core Subtopic 323-10 applies to common stock and in-substance common stock, with a rebuttable presumption of significant influence at 20% of voting stock (323-10-15-8), while companion Subtopics extend or override that model: 323-30 applies the method by analogy to partnerships, unincorporated joint ventures and LLCs; 323-970 covers real estate ventures (one-line presentation, contributed-property measurement, losses in excess of investment); 323-932 permits proportional (direct) inclusion for oil and gas joint interest operations; 323-946 bars the equity method for investment companies except for service-providing operating entities; 323-974 forces REITs to apply the equity method or consolidate non-VIE service corporations; and 323-740 provides the elective proportional amortization method for tax credit investments. The unifying idea is that significant influence—judged on substance and facts and circumstances, not only voting percentage—triggers equity method reporting, with industry-specific Subtopics tailoring or displacing that default. Source downloaded (UTC): 2026-09-09T23:39:45.959Z to 2026-09-09T23:40:38.151Z Record version: sha256:72c09821b247545ff573a7a850a7f9d86036e921f7ee9eadc5c2d25f94fad083 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10: Investments—Equity Method and Joint Ventures — Overall ### Machine-generated study aids ```json { "summary": "ASC 323-10 governs the equity method of accounting for investments in common stock (and in-substance common stock) of corporate joint ventures and other investees over which the investor can exercise significant influence but does not control. An investment of 20% or more of the voting stock creates a rebuttable presumption of significant influence (323-10-15-8); under the method, the investment is initially recorded at cost (323-10-30-2) and then adjusted for the investor's share of investee earnings/losses, dividends, OCI, intra-entity profit eliminations, and basis-difference amortization, and reported as a single line on both the balance sheet and income statement (323-10-45-1). Losses are recognized only down to zero (plus other investments and committed support), and other-than-temporary declines in value must be recognized (323-10-35-32).", "key_points": [ "Scope covers investments in common stock or in-substance common stock giving the ability to exercise significant influence, including corporate joint ventures (323-10-15-3); it excludes derivatives under 815-10, investments held by nonbusiness entities, investments within Topic 810's scope, and investment-company holdings under Topic 946 (323-10-15-4), as well as partnerships/unincorporated joint ventures (323-30) and certain LLCs (323-10-15-5).", "Ownership of 20 percent or more of voting stock (based only on currently outstanding securities with present voting privileges, ignoring potential voting rights) presumes significant influence unless overcome by predominant evidence such as standstill agreements, failure to obtain board representation, or concentrated majority ownership (323-10-15-8 through 15-11).", "In-substance common stock requires substantially similar subordination, risks and rewards of ownership, and no obligation of the investee to transfer substantive value to the investor that common shareholders do not share; failing any one characteristic disqualifies the instrument (323-10-15-13 through 15-14), with a fair-value-covariance backstop test in 323-10-15-15.", "Initial measurement is at cost per Section 805-50-30, except retained investments in a deconsolidation and investments received on derecognition of nonfinancial assets under 610-20, which are measured at fair value (323-10-30-2); a liability is recognized for contingent consideration when the investor's share of investee net assets exceeds initial cost (323-10-25-2A; 30-2B).", "The investor recognizes its share of investee earnings/losses when reported by the investee (not when dividends are declared), adjusts carrying amount accordingly, eliminates intra-entity profits on assets still held, amortizes basis differences (equity method goodwill is not amortized and not separately impairment-tested), records dividends as reductions of the carrying amount, and picks up its share of investee OCI (323-10-35-4 through 35-18).", "Equity method losses are reported up to the carrying amount of the investment plus other investments in the investee applied in order of seniority; the method is suspended at zero unless the investor has guaranteed obligations or is otherwise committed to provide support, and is resumed only after subsequent income equals the unrecognized losses (323-10-35-19 through 35-29).", "The investment is presented as a single amount on the balance sheet and a single amount of earnings/losses in income (323-10-45-1); disclosures include investee names and ownership percentages, accounting policy (including reasons for 20%+ non-equity-method and sub-20% equity-method treatment), the cost/underlying-equity difference, quoted market values, summarized investee financial information if material, and effects of potential dilutive issuances (323-10-50-3)." ], "categories": [ "Recognition", "Subsequent measurement", "Impairment", "Consolidation" ], "audience_level": "intermediate", "student_note": "The equity method is a classic exam topic: remember it is a \"one-line consolidation\" that follows influence, not control, and that the 20% threshold is only a rebuttable presumption based on present voting rights. The most common errors are recognizing dividends as income (they reduce the carrying amount), continuing to record losses below zero, and forgetting that upstream and downstream intra-entity profits are eliminated to the same extent.", "related_topics": [ "321-10", "323-30", "810-10", "350-20", "805-50", "970-323" ], "key_concepts": [ "equity method", "significant influence", "in-substance common stock", "20 percent presumption", "intra-entity profit elimination", "basis difference and equity method goodwill", "suspension of losses", "other-than-temporary impairment" ] } ``` Source downloaded (UTC): 2026-09-09T23:39:45.959Z to 2026-09-09T23:39:45.959Z Record version: sha256:fd11c6d0e8b32fc04817199478259cfe7bd100fd25d58bbd532eb0c38d5c3ce3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/323/10/#00-status) SEC content: no ##### [323-10-00-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-00-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:45.959Z to 2026-09-09T23:39:45.959Z Record version: sha256:b0ef06cfbe95c76636f6c3cf5db6519c59abb1127789a4cc54b6f38f673626f0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
Corporate Joint VentureAmendedAccounting Standards Update No. 2010-0802/02/2010
Not-for-Profit EntityAddedAccounting Standards Update No. 2014-0201/16/2014
Private CompanySupersededAccounting Standards Update No. 2019-0605/30/2019
Private CompanyAddedAccounting Standards Update No. 2014-0201/16/2014
Public Business EntityAmendedMaintenance Update 2017-06 (PDF)04/07/2017
Public Business EntityAmendedMaintenance Update 2016-11 (PDF)06/27/2016
Public Business EntityAddedAccounting Standards Update No. 2014-0201/16/2014
323-10-05-1AmendedAccounting Standards Update No. 2016-0101/05/2016
323-10-05-4AmendedAccounting Standards Update No. 2016-0101/05/2016
323-10-15-4AmendedAccounting Standards Update No. 2013-0806/07/2013
323-10-15-4AmendedAccounting Standards Update No. 2012-0410/01/2012
323-10-25-2AmendedAccounting Standards Update No. 2015-0202/18/2015
323-10-25-3AmendedMaintenance Update 2020-18 (PDF)11/25/2020
323-10-25-3 through 25-6
AmendedAccounting Standards Update No. 2018-0706/20/2018
323-10-25-7AddedAccounting Standards Update No. 2013-0806/07/2013
323-10-30-2AmendedAccounting Standards Update No. 2017-0502/22/2017
323-10-30-2AmendedAccounting Standards Update No. 2010-0201/06/2010
323-10-30-3AmendedAccounting Standards Update No. 2018-0706/20/2018
323-10-35-2AmendedAccounting Standards Update No. 2015-0202/18/2015
323-10-35-7AmendedAccounting Standards Update No. 2017-0502/22/2017
323-10-35-7AmendedAccounting Standards Update No. 2010-0201/06/2010
323-10-35-13AmendedAccounting Standards Update No. 2021-0303/30/2021
323-10-35-13AmendedAccounting Standards Update No. 2019-0605/30/2019
323-10-35-13AmendedAccounting Standards Update No. 2014-0201/16/2014
323-10-35-24AmendedAccounting Standards Update No. 2019-0404/25/2019
323-10-35-24 through 35-26
AmendedAccounting Standards Update No. 2016-0101/05/2016
323-10-35-25AmendedAccounting Standards Update No. 2016-1306/16/2016
323-10-35-26AmendedAccounting Standards Update No. 2019-0404/25/2019
323-10-35-33AmendedAccounting Standards Update No. 2020-0101/16/2020
323-10-35-33AmendedAccounting Standards Update No. 2016-0703/15/2016
323-10-35-33AmendedAccounting Standards Update No. 2010-0802/02/2010
323-10-35-36AmendedAccounting Standards Update No. 2020-0101/16/2020
323-10-35-36AmendedAccounting Standards Update No. 2016-0101/05/2016
323-10-35-37AmendedAccounting Standards Update No. 2016-0101/05/2016
323-10-45-1AmendedAccounting Standards Update No. 2015-0101/09/2015
323-10-45-2AmendedAccounting Standards Update No. 2015-0101/09/2015
323-10-45-3AmendedAccounting Standards Update No. 2011-0506/16/2011
323-10-45-4SupersededAccounting Standards Update No. 2013-0806/07/2013
323-10-50-3(c)AmendedMaintenance Update 2015-11 (PDF)06/19/2015
323-10-55-19 through 55-26
AmendedAccounting Standards Update No. 2018-0706/20/2018
323-10-55-19AmendedAccounting Standards Update No. 2016-0903/30/2016
323-10-55-24AmendedMaintenance Update 2020-18 (PDF)11/25/2020
323-10-55-27AmendedAccounting Standards Update No. 2017-0502/22/2017
323-10-55-30AmendedAccounting Standards Update No. 2016-0101/05/2016
323-10-55-34AmendedAccounting Standards Update No. 2016-1306/16/2016
323-10-55-34AmendedAccounting Standards Update No. 2012-0410/01/2012
323-10-55-36AmendedAccounting Standards Update No. 2012-0410/01/2012
323-10-55-38AmendedAccounting Standards Update No. 2016-1306/16/2016
323-10-55-38AmendedAccounting Standards Update No. 2012-0410/01/2012
323-10-55-40AmendedAccounting Standards Update No. 2012-0410/01/2012
323-10-55-42AmendedAccounting Standards Update No. 2016-1306/16/2016
323-10-55-42AmendedAccounting Standards Update No. 2012-0410/01/2012
323-10-55-44AmendedAccounting Standards Update No. 2016-1306/16/2016
323-10-55-44AmendedAccounting Standards Update No. 2012-0410/01/2012
323-10-55-46AmendedAccounting Standards Update No. 2016-1306/16/2016
323-10-65-2AddedAccounting Standards Update No. 2016-0703/15/2016
Source downloaded (UTC): 2026-09-09T23:39:49.957Z to 2026-09-09T23:39:49.957Z Record version: sha256:fee8cefcd0e8da263ed0c721ea368f99b4d8429d79ed22bbb139155258063800 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/323/10/#05-overview-and-background) SEC content: no ##### [323-10-05-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-05-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:49.957Z to 2026-09-09T23:39:49.957Z Record version: sha256:75b5819db27770a07a617130762152ff0d32df8ff9126289ea6eaf3085e16cfb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Codification contains several Topics for investments due to the differing accounting treatment for various forms of investments. The Topics include all of the following: 1. a Topic 320, Investments—Debt Securities 2. aa Topic 321, Investments—Equity Securities 3. b Topic 323, Investments—Equity Method and Joint Ventures 4. c Topic 325, Investments—Other. ##### [323-10-05-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-05-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:49.957Z to 2026-09-09T23:39:49.957Z Record version: sha256:0fa140919e9aa98ddc9cf04f63004e2cf2525a5579955c63117d599447820cd1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Investments—Equity Method and Joint Ventures Topic includes the following Subtopics: 1. a Overall 2. b Partnerships, Joint Ventures, and Limited Liability Entities 3. c Income Taxes. ##### [323-10-05-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-05-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:49.957Z to 2026-09-09T23:39:49.957Z Record version: sha256:c1ef0927d648d18f0031c8cbf50ef8292c922c45d6a3611bbd2560a45150acf4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Overall Subtopic addresses application of the equity method of accounting to investments within its scope. ##### [323-10-05-4](https://asc.understandingaccounting.org/asc/323/10/#323-10-05-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:49.957Z to 2026-09-09T23:39:49.957Z Record version: sha256:5ad632bb8b7942ec3ca61f26fa9bcf37c6b8a8a7712c219ef0ce3fa36f587d46 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investments held in stock of entities other than [subsidiaries](https://asc.understandingaccounting.org/glossary/s/#subsidiary "An entity, including an unincorporated entity such as a partnership or trust, in which another entity, known as its parent, holds a controlling financial interest. (Also, a variable interest entity that is consolidated by a primary beneficiary.)"), namely [corporate joint ventures](https://asc.understandingaccounting.org/glossary/c/#corporate-joint-venture "A corporation owned and operated by a small group of entities (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group. A government may also be a member of the group. The purpose of a corporate joint venture frequently is to share risks and rewards in developing a new market, product or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities. A corporate joint venture also usually provides an arrangement under which each joint venturer may participate, directly or indirectly, in the overall management of the joint venture. Joint venturers thus have an interest or relationship other than as passive investors. An entity that is a subsidiary of one of the joint venturers is not a corporate joint venture. The ownership of a corporate joint venture seldom changes, and its stock is usually not traded publicly. A noncontrolling interest held by public ownership, however, does not preclude a corporation from being a corporate joint venture.") and other noncontrolled entities usually are accounted for in accordance with either the recognition and measurement guidance in Subtopic 321-10 or the equity method. This Subtopic provides guidance on application of the equity method.The equity method is an appropriate means of recognizing increases or decreases measured by generally accepted accounting principles (GAAP) in the economic resources underlying the investments. Furthermore, the equity method of accounting closely meets the objectives of accrual accounting because the [investor](https://asc.understandingaccounting.org/glossary/i/#investor "A business entity that holds an investment in voting stock of another entity.") recognizes its share of the earnings and losses of the [investee](https://asc.understandingaccounting.org/glossary/i/#investee "An entity that issued an equity instrument that is held by an investor.") in the periods in which they are reflected in the accounts of the investee. The equity method also best enables investors in corporate joint ventures to reflect the underlying nature of their investment in those ventures. ##### [323-10-05-5](https://asc.understandingaccounting.org/asc/323/10/#323-10-05-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:49.957Z to 2026-09-09T23:39:49.957Z Record version: sha256:a661845041551dc2d69659ec364405d71159aa5746cc431fa7c09b8e30678f21 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The equity method tends to be most appropriate if an investment enables the investor to influence the operating or financial decisions of the investee. The investor then has a degree of responsibility for the return on its investment, and it is appropriate to include in the results of operations of the investor its share of the earnings or losses of the investee. Influence tends to be more effective as the investor's percent of ownership in the voting stock of the investee increases. Investments of relatively small percentages of voting stock of an investee tend to be passive in nature and enable the investor to have little or no influence on the operations of the investee. ##### [323-10-05-6](https://asc.understandingaccounting.org/asc/323/10/#323-10-05-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:49.957Z to 2026-09-09T23:39:49.957Z Record version: sha256:00d0433cfe2db7946659d6717a1e89b5b87d07c140ca070fe7ac7c33a8e9e6c2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In addition to the joint venture guidance included in this Topic, the accounting and reporting for real estate joint ventures is addressed in Subtopic 970-323. Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:e4461eba112d95975e76b1eb86d52cea3ca4d4fe366f0d930f1c4c85aa4321d0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/323/10/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [323-10-15-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:d6f38383adce24874c6437938a7c1db5ac7c2eec910daa744c954b929af2abf5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Scope Section of the Overall Subtopic establishes the pervasive scope for all Subtopics of the Investments—Equity Method and Joint Ventures Topic. Unless explicitly addressed within specific Subtopics, the following scope guidance applies to all Subtopics of the Investments—Equity Method and Joint Ventures Topic. #### Entities ##### [323-10-15-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:63721b0a99f8e10e3c16f07de5284549365c4d7d49e1dca02b1386b235be21fa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in the Investments—Equity Method and Joint Ventures Topic applies to all entities. #### Instruments ##### [323-10-15-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:5330744a87ae34eeb2758d95359ede611bf9114bfadab91da5e4e602886fe63e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in the Investments—Equity Method and Joint Ventures Topic applies to investments in [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 [in-substance common stock](https://asc.understandingaccounting.org/glossary/i/#in-substance-common-stock "An investment in an entity that has risk and reward characteristics that are substantially similar to that entity's common stock.") (or both common stock and in-substance common stock), including investments in common stock of [corporate joint ventures](https://asc.understandingaccounting.org/glossary/c/#corporate-joint-venture "A corporation owned and operated by a small group of entities (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group. A government may also be a member of the group. The purpose of a corporate joint venture frequently is to share risks and rewards in developing a new market, product or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities. A corporate joint venture also usually provides an arrangement under which each joint venturer may participate, directly or indirectly, in the overall management of the joint venture. Joint venturers thus have an interest or relationship other than as passive investors. An entity that is a subsidiary of one of the joint venturers is not a corporate joint venture. The ownership of a corporate joint venture seldom changes, and its stock is usually not traded publicly. A noncontrolling interest held by public ownership, however, does not preclude a corporation from being a corporate joint venture.")(see paragraphs [323-10-15-13 through 15-19](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-13) for guidance on identifying in-substance common stock). Subsequent references in this Subtopic to common stock refer to both common stock and in-substance common stock that give the [investor](https://asc.understandingaccounting.org/glossary/i/#investor "A business entity that holds an investment in voting stock of another entity.") the ability to exercise [significant influence](https://asc.understandingaccounting.org/glossary/s/#significant-influence "Paragraphs 323-10-15-6323-10-15-7323-10-15-8323-10-15-9323-10-15-10323-10-15-11 define significant influence.") (see paragraph [323-10-15-6](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-6)) over operating and financial policies of an [investee](https://asc.understandingaccounting.org/glossary/i/#investee "An entity that issued an equity instrument that is held by an investor.") even though the investor holds 50% or less of the common stock or in-substance common stock (or both common stock and in-substance common stock). ##### [323-10-15-4](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:2d1ab9704e4ae847a2a933339cb1a9b4da2ae5a047f671cf8dc50ad4f20b11f8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Topic does not apply to any of the following: 1. a An investment accounted for in accordance with Subtopic 815-10 2. b An investment in common stock held by a nonbusiness entity, such as an estate, trust, or individual 1. 1 [Subparagraph superseded by Accounting Standards Update No. 2012-04](https://asc.understandingaccounting.org/updates/asu-2012-04/). 2. 2 [Subparagraph superseded by Accounting Standards Update No. 2012-04](https://asc.understandingaccounting.org/updates/asu-2012-04/). 3. 3 [Subparagraph superseded by Accounting Standards Update No. 2012-04](https://asc.understandingaccounting.org/updates/asu-2012-04/). 3. c An investment in common stock within the scope of Topic 810 4. d Except as discussed in paragraph [946-323-45-2](https://asc.understandingaccounting.org/asc/323/946/#323-946-45-2), an investment held by an investment company within the scope of Topic 946. ##### [323-10-15-5](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:17dd1add077e82f434cd8ecd4d5b62cdfd97a312575f1181d08b1b92276c5979 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in the Overall Subtopic does not apply to any of the following: 1. a An investment in a partnership or unincorporated joint venture (also called an undivided interest in ventures), see Subtopic 323-30 2. b An investment in a limited liability company that maintains specific ownership accounts for each investor as discussed in Subtopic 272-10. #### Other Considerations ##### [323-10-15-6](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:5b5d88ba7fcb6e7b4ad8892b7e53d260ac24f4f3d28cba99a6b07f6b40758fa0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Ability to exercise significant influence over operating and financial policies of an investee may be indicated in several ways, including the following: 1. a Representation on the board of directors 2. b Participation in policy-making processes 3. c Material intra-entity transactions 4. d Interchange of managerial personnel 5. e Technological dependency 6. f Extent of ownership by an investor in relation to the concentration of other shareholdings (but substantial or majority ownership of the voting stock of an investee by another investor does not necessarily preclude the ability to exercise significant influence by the investor). ##### [323-10-15-7](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:382e129ddeb097c303ca9c85b439204990c093f0c84023db5f057095c5283a6c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Determining the ability of an investor to exercise significant influence is not always clear and applying judgment is necessary to assess the status of each investment. ##### [323-10-15-8](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:76303f9c655f8b5b6a8f6f878dcb58f5f8014dbef821c820a6a57b15e13cfb40 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment (direct or indirect) of 20 percent or more of the voting stock of an investee shall lead to a presumption that in the absence of predominant evidence to the contrary an investor has the ability to exercise significant influence over an investee. Conversely, an investment of less than 20 percent of the voting stock of an investee shall lead to a presumption that an investor does not have the ability to exercise significant influence unless such ability can be demonstrated. The equity method shall not be applied to the investments described in this paragraph insofar as the limitations on the use of the equity method outlined in paragraph [323-10-25-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-2) would apply to investments other than those in [subsidiaries](https://asc.understandingaccounting.org/glossary/s/#subsidiary "An entity, including an unincorporated entity such as a partnership or trust, in which another entity, known as its parent, holds a controlling financial interest. (Also, a variable interest entity that is consolidated by a primary beneficiary.)"). ##### [323-10-15-9](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-9) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:9739679ade8cfa48be588f4b952f748b57777e9459287665e93b64e7bc8cdb25 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investor's voting stock interest in an investee shall be based on those currently outstanding securities whose holders have present voting privileges. Potential voting privileges that may become available to holders of securities of an investee shall be disregarded. ##### [323-10-15-10](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-10) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:8dbe14ef219b4bf0b3f6bf10cfb7b72d64e996247e876b6b9b39d93beaa775f6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Evidence that an investor owning 20 percent or more of the voting stock of an investee may be unable to exercise significant influence over the investee's operating and financial policies requires an evaluation of all the facts and circumstances relating to the investment. The presumption that the investor has the ability to exercise significant influence over the investee's operating and financial policies stands until overcome by predominant evidence to the contrary. Indicators that an investor may be unable to exercise significant influence over the operating and financial policies of an investee include the following: 1. a Opposition by the investee, such as litigation or complaints to governmental regulatory authorities, challenges the investor's ability to exercise significant influence. 2. b The investor and investee sign an agreement (such as a [standstill agreement](https://asc.understandingaccounting.org/glossary/s/#standstill-agreement "An agreement signed by the investee and investor under which the investor agrees to limit its shareholding in the investee.")) under which the investor surrenders significant rights as a shareholder. (Under a standstill agreement, the investor usually agrees not to increase its current holdings. Those agreements are commonly used to compromise disputes if an investee is fighting against a takeover attempt or an increase in an investor's percentage ownership. Depending on their provisions, the agreements may modify an investor's rights or may increase certain rights and restrict others compared with the situation of an investor without such an agreement.) 3. c Majority ownership of the investee is concentrated among a small group of shareholders who operate the investee without regard to the views of the investor. 4. d The investor needs or wants more financial information to apply the equity method than is available to the investee's other shareholders (for example, the investor wants quarterly financial information from an investee that publicly reports only annually), tries to obtain that information, and fails. 5. e The investor tries and fails to obtain representation on the investee's board of directors. ##### [323-10-15-11](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-11) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:a3f845de4aaf0e474b44d5a25346f324d021f4f5b3e79c9ff4b60ef744d89dac Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The list in the preceding paragraph is illustrative and is not all-inclusive. None of the individual circumstances is necessarily conclusive that the investor is unable to exercise significant influence over the investee's operating and financial policies. However, if any of these or similar circumstances exists, an investor with ownership of 20 percent or more shall evaluate all facts and circumstances relating to the investment to reach a judgment about whether the presumption that the investor has the ability to exercise significant influence over the investee's operating and financial policies is overcome. It may be necessary to evaluate the facts and circumstances for a period of time before reaching a judgment. ##### [323-10-15-12](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-12) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:9751cb8fbbde01712ce43cd131df0b871c0d88f17f5422be32d621ccadaef041 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment in common stock of an investee that was previously accounted for on other than the equity method may become qualified for use of the equity method in accordance with paragraph [323-10-15-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-3) by an increase in the level of ownership described in that paragraph (that is, acquisition of additional voting stock by the investor, acquisition or retirement of voting stock by the investee, or other transactions). See paragraph [323-10-35-33](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-33) for guidance on all changes in an investor's level of ownership or degree of influence. ##### [323-10-15-13](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-13) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:0ac56f16a370ae8594379de47ebf21488ac9b1cee6d5a7b59a59553eb1ad340e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of this Topic, in-substance common stock is an investment in an entity that has risk and reward characteristics that are substantially similar to that entity's common stock. An investor shall consider all of the following characteristics when determining whether an investment in an entity is substantially similar to an investment in that entity's common stock: 1. a Subordination. An investor shall determine whether the investment has subordination characteristics that are substantially similar to that entity's common stock. If an investment has a substantive liquidation preference over common stock, it is not substantially similar to the common stock. However, certain liquidation preferences are not substantive. An investor shall determine whether a liquidation preference is substantive. For example, if the investment has a stated liquidation preference that is not significant in relation to the purchase price of the investment, the liquidation preference is not substantive. Further, a stated liquidation preference is not substantive if the investee has little or no subordinated equity (for example, common stock) from a fair value perspective. A liquidation preference in an investee that has little or no subordinated equity from a fair value perspective is nonsubstantive because, in the event of liquidation, the investment will participate in substantially all of the investee's losses. 2. b Risks and rewards of ownership. An investor shall determine whether the investment has risks and rewards of ownership that are substantially similar to an investment in that entity's common stock. If an investment is not expected to participate in the earnings (and losses) and capital appreciation (and depreciation) in a manner that is substantially similar to common stock, the investment is not substantially similar to common stock. If the investee pays [dividends](https://asc.understandingaccounting.org/glossary/d/#dividends "Dividends paid or payable in cash, other assets, or another class of stock and does not include stock dividends or stock splits.") on its common stock and the investment participates currently in those dividends in a manner that is substantially similar to common stock, then that is an indicator that the investment is substantially similar to common stock. Likewise, if the investor has the ability to convert the investment into that entity's common stock without any significant restrictions or contingencies that prohibit the investor from participating in the capital appreciation of the investee in a manner that is substantially similar to that entity's common stock, the conversion feature is an indicator that the investment is substantially similar to the common stock. The right to convert certain investments to common stock (such as the exercise of deep-in-the-money warrants) enables the interest to participate in the investee's earnings (and losses) and capital appreciation (and depreciation) on a substantially similar basis to common stock. 3. c Obligation to transfer value. An investment is not substantially similar to common stock if the investee is expected to transfer substantive value to the investor and the common shareholders do not participate in a similar manner. For example, if the investment has a substantive redemption provision (for example, a mandatory redemption provision or a non-fair-value put option) that is not available to common shareholders, the investment is not substantially similar to common stock. An obligation to transfer value at a specious future date, such as preferred stock with a mandatory redemption in 100 years, shall not be considered an obligation to transfer substantive value. ##### [323-10-15-14](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-14) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:1e83cf96815c1893c4aba4ff87182c48d7b34ab47bb0e48929c10b5e16c76b5d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an investment's subordination characteristics and risks and rewards of ownership are substantially similar to the common stock of the investee and the investment does not require the investee to transfer substantive value to the investor in a manner in which the common shareholders do not participate similarly, then the investment is in-substance common stock. If the investor determines that any one of the characteristics in the preceding paragraph indicates that an investment in an entity is not substantially similar to an investment in that entity's common stock, the investment is not in-substance common stock. If an investee has more than one class of common stock, the investor shall perform the analysis described in the preceding paragraph and the following paragraph (if necessary) by comparing its investment to all classes of common stock. ##### [323-10-15-15](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-15) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:b9eeb97c29dc42fd3998fbb183c726beb8cac3fa6b1b0149120a16dd49012976 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the determination about whether the investment is substantially similar to common stock cannot be reached based solely on the evaluation under paragraph [323-10-15-13](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-13), the investor shall also analyze whether the future changes in the fair value of the investment are expected to vary directly with the changes in the fair value of the common stock. If the changes in the fair value of the investment are not expected to vary directly with the changes in the fair value of the common stock, then the investment is not in-substance common stock. ##### [323-10-15-16](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-16) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:34c9232aa776ed1a50979b8322ca3888d540647d9d4b06f6e7f800d46a86b608 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The initial determination of whether an investment is substantially similar to common stock shall be made on the date on which the investor obtains the investment if the investor has the ability to exercise significant influence over the operating and financial policies of the investee. That determination shall be reconsidered if any of the following occur: 1. a The contractual terms of the investment are changed resulting in a change to any of its characteristics described in paragraph [323-10-15-13](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-13) and the preceding paragraph. An expected change in the contractual terms of an investment that are provided for in the original terms of the contractual agreement shall be considered for purposes of the initial determination under paragraph 323-10-15-13 and not as a reconsideration event. However, a change in the form of the investment (for example, debt to equity or preferred stock to another series of stock) is a reconsideration event. 2. b There is a significant change in the capital structure of the investee, including the investee's receipt of additional subordinated financing. 3. c The investor obtains an additional interest in an investment in which the investor has an existing interest. As a result, the method of accounting for the cumulative interest is based on the characteristics of the investment at the date at which the investor obtains the additional interest (that is, the characteristics that the investor evaluated to make its investment decision), and will result in the investor applying one method of accounting to the cumulative interest in an investment of the same issuance. ##### [323-10-15-17](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-17) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:2a099016e67aa0e867ecb1f22b6bba9777c74f51b46a6ee04e07f12eefaee8b2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The determination of whether an investment is similar to common stock shall not be reconsidered solely due to losses of the investee. ##### [323-10-15-18](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-18) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:8d531405292af98d78934bd3a5cffdaa089ee6eeb67241cd47aba855925c8a2a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an investor obtains the ability to exercise significant influence over the operating and financial policies of an investee after the date the investor obtained the investment, the investor shall perform an initial determination, pursuant to paragraphs [323-10-15-13](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-13) and [323-10-15-15](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-15), using all relevant and necessary information that exists on the date that the investor obtains significant influence. ##### [323-10-15-19](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-19) Pending content: no Source downloaded (UTC): 2026-09-09T23:39:52.830Z to 2026-09-09T23:39:52.830Z Record version: sha256:01541fc79a241cb726e76d2278e7deb6b0731a6e216dc7757800ecb6d3bb6a66 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 1 (see paragraph [323-10-55-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-1)) illustrates the application of the guidance in paragraphs [323-10-15-13](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-13) and [323-10-15-15](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-15). Source downloaded (UTC): 2026-09-09T23:40:00.205Z to 2026-09-09T23:40:00.205Z Record version: sha256:bd912d71f59473a486c4d0f81b1a65d4ed5b1755b7059ee3c21e894511dea838 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/323/10/#25-recognition) SEC content: no #### Terminology ##### [323-10-25-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:00.205Z to 2026-09-09T23:40:00.205Z Record version: sha256:c8109c195772612a34e84c736282cbeecb7562da52f56e0a44db0820464948ad Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [323-10-15-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-3) explains that references in this Subtopic to [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.") refer to both common stock and [in-substance common stock](https://asc.understandingaccounting.org/glossary/i/#in-substance-common-stock "An investment in an entity that has risk and reward characteristics that are substantially similar to that entity's common stock.") that give the [investor](https://asc.understandingaccounting.org/glossary/i/#investor "A business entity that holds an investment in voting stock of another entity.") the ability to exercise [significant influence](https://asc.understandingaccounting.org/glossary/s/#significant-influence "Paragraphs 323-10-15-6323-10-15-7323-10-15-8323-10-15-9323-10-15-10323-10-15-11 define significant influence.") over operating and financial policies of an [investee](https://asc.understandingaccounting.org/glossary/i/#investee "An entity that issued an equity instrument that is held by an investor.") even though the investor holds 50% or less of the common stock or in-substance common stock (or both common stock and in-substance common stock). #### The Equity Method—Overall Guidance ##### [323-10-25-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:00.205Z to 2026-09-09T23:40:00.205Z Record version: sha256:ce87630188885ebbae605a62151c0d9e5092afdb6e25d08beeb789d31bb400f6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investor shall recognize an investment in the stock of an investee as an asset. The equity method is not a valid substitute for consolidation. The limitations under which a majority-owned [subsidiary](https://asc.understandingaccounting.org/glossary/s/#subsidiary "An entity, including an unincorporated entity such as a partnership or trust, in which another entity, known as its parent, holds a controlling financial interest. (Also, a variable interest entity that is consolidated by a primary beneficiary.)") shall not be consolidated (see paragraphs [810-10-15-8 through 15-10](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-8) ) shall also be applied as limitations to the use of the equity method. ##### [323-10-25-2A](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-2A) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:00.205Z to 2026-09-09T23:40:00.205Z Record version: sha256:6ab6c4376109b245ea3cbe2df7a8dbde8a8f632c2b403c4ab6f0f2857b10c121 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an equity method investment agreement involves a contingent consideration arrangement in which the fair value of the investor's share of the investee's net assets exceeds the investor's initial cost, a liability shall be recognized. #### Share-Based Compensation Granted to Employees and Nonemployees of an Equity Method Investee ##### [323-10-25-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:00.205Z to 2026-09-09T23:40:00.205Z Record version: sha256:44b335dfb2efe1dd430806080c52c1cc88b3f0f65fd17164113b733efdd622c5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraphs [323-10-25-4 through 25-6](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-4) provide guidance on accounting for share-based payment awards granted by an investor to employees or nonemployees of an equity method investee that provide goods or services to the investee that are used or consumed in the investee's operations when no proportionate funding by the other investors occurs and the investor does not receive any increase in the investor's relative ownership percentage of the investee. That guidance assumes that the investor's grant of share-based payment awards to employees or nonemployees of the equity method investee was not agreed to in connection with the investor's acquisition of an interest in the investee. That guidance applies to share-based payment awards granted to employees or nonemployees of an investee by an investor based on that investor's stock (that is, stock of the investor or other equity instruments indexed to, and potentially settled in, stock of the investor). ##### [323-10-25-4](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:00.205Z to 2026-09-09T23:40:00.205Z Record version: sha256:31070c7d5bb6e74f8825db11a222edcf09b8cca93347caf53f7b64a527fb1b2f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the circumstances described in paragraph [323-10-25-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-3), a contributing investor shall expense the cost of share-based payment awards granted to employees and nonemployees of an equity method investee as incurred (that is, in the same period the costs are recognized by the investee) to the extent that the investor's claim on the investee's book value has not been increased. ##### [323-10-25-5](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:00.205Z to 2026-09-09T23:40:00.205Z Record version: sha256:387e567347c454e34239e27f705c88954cd910ed80f91e82dc3d794c91cfef8b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the circumstances described in paragraph [323-10-25-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-3), other equity method investors in an investee (that is, noncontributing investors) shall recognize income equal to the amount that their interest in the investee's net book value has increased (that is, their percentage share of the contributed capital recognized by the investee) as a result of the disproportionate funding of the compensation costs. Further, those other equity method investors shall recognize their percentage share of earnings or losses in the investee (inclusive of any expense recognized by the investee for the share-based compensation funded on its behalf). ##### [323-10-25-6](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:00.205Z to 2026-09-09T23:40:00.205Z Record version: sha256:c9e704cfe850a968fdfd574b550c817724ccd7b0f2f4203b9f06a96e314a88e0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 2 (see paragraph [323-10-55-19](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-19)) illustrates the application of this guidance for share-based compensation granted to employees of an equity method investee. #### Retention of Industry-Specific Accounting ##### [323-10-25-7](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:00.205Z to 2026-09-09T23:40:00.205Z Record version: sha256:600cb36312dc54ddba6153b92a874750bcb23a6b59598e0eeccbc2d90592d12f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For the purposes of applying the equity method of accounting to an investee subject to guidance in an industry-specific Topic, an entity shall retain the industry-specific guidance applied by that investee. Source downloaded (UTC): 2026-09-09T23:40:02.034Z to 2026-09-09T23:40:02.034Z Record version: sha256:8352fd0b1efda4027c933550ed89171f92f3d88f0aa2c0f2857bec0eb6b95c99 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-30: 30 Initial Measurement [Read section](https://asc.understandingaccounting.org/asc/323/10/#30-initial-measurement) SEC content: no #### Terminology ##### [323-10-30-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-30-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:02.034Z to 2026-09-09T23:40:02.034Z Record version: sha256:efc3dfaa910dcdbf19fbed043b96f3e8dbd7872ed6012447bd343534e1b0ea2c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [323-10-15-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-3) explains that references in this Subtopic to [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.") refer to both common stock and [in-substance common stock](https://asc.understandingaccounting.org/glossary/i/#in-substance-common-stock "An investment in an entity that has risk and reward characteristics that are substantially similar to that entity's common stock.") that give the [investor](https://asc.understandingaccounting.org/glossary/i/#investor "A business entity that holds an investment in voting stock of another entity.") the ability to exercise [significant influence](https://asc.understandingaccounting.org/glossary/s/#significant-influence "Paragraphs 323-10-15-6323-10-15-7323-10-15-8323-10-15-9323-10-15-10323-10-15-11 define significant influence.") over operating and financial policies of an [investee](https://asc.understandingaccounting.org/glossary/i/#investee "An entity that issued an equity instrument that is held by an investor.") even though the investor holds 50% or less of the common stock or in-substance common stock (or both common stock or in-substance common stock). #### The Equity Method—Overall Guidance ##### [323-10-30-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-30-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:02.034Z to 2026-09-09T23:40:02.034Z Record version: sha256:c6e2d12bd8e491e00c6f350d6ba86abdd3fb2c07ba269583b0dc68d7ea1b75af Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Except as provided in the following sentence, an investor shall measure an investment in the common stock of an investee (including a joint venture) initially at cost in accordance with the guidance in Section 805-50-30. An investor shall initially measure, at fair value, the following: 1. a A retained investment in the common stock of an investee (including a joint venture) in a deconsolidation transaction in accordance with paragraphs [810-10-40-3A through 40-5](https://asc.understandingaccounting.org/asc/810/10/#810-10-40-3A) 2. b An investment in the common stock of an investee (including a joint venture) recognized upon the derecognition of a distinct nonfinancial asset or distinct in substance nonfinancial asset in accordance with Subtopic 610-20. ##### [323-10-30-2A](https://asc.understandingaccounting.org/asc/323/10/#323-10-30-2A) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:02.034Z to 2026-09-09T23:40:02.034Z Record version: sha256:dfbc85e2c1eece7567612862a5df8a7ddd92c2719de7d613bfb3cd69a12b1771 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Contingent consideration shall only be included in the initial measurement of an equity method investment if it is required to be recognized by specific authoritative guidance other than Topic 805. ##### [323-10-30-2B](https://asc.understandingaccounting.org/asc/323/10/#323-10-30-2B) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:02.034Z to 2026-09-09T23:40:02.034Z Record version: sha256:b319d9c0ffa3cef50f1c8344fe3cb98556d89320638f57c5cca205f6983daf7d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A liability recognized under paragraph [323-10-25-2A](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-2A) shall be measured initially at an amount equal to the lesser of the following: 1. a The maximum amount of contingent consideration not otherwise recognized 2. b The excess of the investor's share of the investee's net assets over the initial cost measurement (including contingent consideration otherwise recognized). #### Share-Based Compensation Granted to Employees and Nonemployees of an Equity Method Investee ##### [323-10-30-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-30-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:02.034Z to 2026-09-09T23:40:02.034Z Record version: sha256:72f03ffd95bb0dcb444c8db091ed7e98cedc13e677cfea614ee214741375a2c9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Share-based compensation cost recognized in accordance with paragraph [323-10-25-4](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-4) shall be measured initially at fair value in accordance with Topic 718. Example 2 (see paragraph [323-10-55-19](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-19)) illustrates the application of this guidance. Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:f16341351dfd923060c0b8e9e79da9792e659faaf273a02b3f60543537b0fdc6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-35: 35 Subsequent Measurement [Read section](https://asc.understandingaccounting.org/asc/323/10/#35-subsequent-measurement) SEC content: no #### Terminology ##### [323-10-35-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:545d6d53d138bbbbf34b4501684b8444e67a8207c9d61873fb2cfc63b9c77ec1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [323-10-15-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-3) explains that references in this Subtopic to [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.") refer to both common stock and [in-substance common stock](https://asc.understandingaccounting.org/glossary/i/#in-substance-common-stock "An investment in an entity that has risk and reward characteristics that are substantially similar to that entity's common stock.") that give the [investor](https://asc.understandingaccounting.org/glossary/i/#investor "A business entity that holds an investment in voting stock of another entity.") the ability to exercise [significant influence](https://asc.understandingaccounting.org/glossary/s/#significant-influence "Paragraphs 323-10-15-6323-10-15-7323-10-15-8323-10-15-9323-10-15-10323-10-15-11 define significant influence.") over operating and financial policies of an [investee](https://asc.understandingaccounting.org/glossary/i/#investee "An entity that issued an equity instrument that is held by an investor.") even though the investor holds 50% or less of the common stock or in-substance common stock (or both common stock or in-substance common stock). #### The Equity Method—Overall Guidance ##### [323-10-35-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:cc71b58f01dee9b20984294c8e1b3256b5f3c614641220b1f3fadc6031b21b31 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [323-10-25-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-2) states that the equity method is not a valid substitute for consolidation. That paragraph also explains that the limitations under which a majority-owned [subsidiary](https://asc.understandingaccounting.org/glossary/s/#subsidiary "An entity, including an unincorporated entity such as a partnership or trust, in which another entity, known as its parent, holds a controlling financial interest. (Also, a variable interest entity that is consolidated by a primary beneficiary.)") shall not be consolidated (see paragraphs [810-10-15-8 through 15-10](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-8) ) shall also be applied as limitations to the use of the equity method. ##### [323-10-35-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:50620b77ab91fd0313a1f570603754abdf8c3c7bb63b7c04c543fbfc2c63e822 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The procedures set forth in this Subtopic shall be followed by an investor in applying the equity method of accounting to investments in common stock of [corporate joint ventures](https://asc.understandingaccounting.org/glossary/c/#corporate-joint-venture "A corporation owned and operated by a small group of entities (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group. A government may also be a member of the group. The purpose of a corporate joint venture frequently is to share risks and rewards in developing a new market, product or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities. A corporate joint venture also usually provides an arrangement under which each joint venturer may participate, directly or indirectly, in the overall management of the joint venture. Joint venturers thus have an interest or relationship other than as passive investors. An entity that is a subsidiary of one of the joint venturers is not a corporate joint venture. The ownership of a corporate joint venture seldom changes, and its stock is usually not traded publicly. A noncontrolling interest held by public ownership, however, does not preclude a corporation from being a corporate joint venture.") and other investees that qualify for the equity method (that is, are within the scope of this Subtopic). ##### [323-10-35-4](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:7a0e1d45feb0c8d1c9c4d30f9fc050238058061951962b5ab4d77b19603cd69b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under the equity method, an investor shall recognize its share of the [earnings or losses of an investee](https://asc.understandingaccounting.org/glossary/e/#earnings-or-losses-of-an-investee "Net income (or net loss) of an investee determined in accordance with U.S. generally accepted accounting principles (GAAP).") in the periods for which they are reported by the investee in its financial statements rather than in the period in which an investee declares a dividend. An investor shall adjust the carrying amount of an investment for its share of the earnings or losses of the investee after the date of investment and shall report the recognized earnings or losses in income. An investor's share of the earnings or losses of an investee shall be based on the shares of common stock and in-substance common stock held by that investor. (See paragraphs [323-10-15-13 through 15-19](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-13) for guidance on identifying in-substance common stock. Subsequent references in this Section to common stock refer to both common stock and in-substance common stock.) ##### [323-10-35-5](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:9acbfc73e01335b6ab52ad126532402905a11598a8f35b286fc020b7f2f083e1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The amount of the adjustment of the carrying amount shall be included in the determination of net income by the investor, and such amount shall reflect adjustments similar to those made in preparing consolidated statements including the following adjustments: 1. a Intra-entity profits and losses. Adjustments to eliminate intra-entity profits and losses. 2. b Basis differences. Adjustments to amortize, if appropriate, any difference between investor cost and underlying equity in net assets of the investee at the date of investment. 3. c Investee capital transactions. Adjustments to reflect the investor's share of changes in the investee's capital. 4. d Other comprehensive income. ##### [323-10-35-6](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:3fcc40769c404735ea80cd04b78176190ce2c4ee90e7db0d87eaf62062cf37f3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If financial statements of an investee are not sufficiently timely for an investor to apply the equity method currently, the investor ordinarily shall record its share of the earnings or losses of an investee from the most recent available financial statements. A lag in reporting shall be consistent from period to period. ##### [323-10-35-7](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:7ebc30fd20d130f9571dc268efe11822c51b20481f3f71ee1be337f5a1d7c3c5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Intra-entity profits and losses shall be eliminated until realized by the investor or investee as if the investee were consolidated. Specifically, intra-entity profits or losses on assets still remaining with an investor or investee shall be eliminated, giving effect to any income taxes on the intra-entity transactions, except for any of the following: 1. a A transaction with an investee (including a joint venture investee) that is accounted for as a deconsolidation of a subsidiary or a derecognition of a group of assets in accordance with paragraphs [810-10-40-3A through 40-5](https://asc.understandingaccounting.org/asc/810/10/#810-10-40-3A) 2. b A transaction with an investee (including a joint venture investee) that is accounted for as a change in ownership transaction in accordance with paragraphs [810-10-45-21A through 45-24](https://asc.understandingaccounting.org/asc/810/10/#810-10-45-21A) . 3. c A transaction with an investee (including a joint venture investee) that is accounted for as the derecognition of an asset in accordance with Subtopic 610-20 on gains and losses from the derecognition of nonfinancial assets. ##### [323-10-35-8](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:351b330f914183d61ca0b5e61e942f2c75a0d10366bcbf982e5223eff753d887 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because the equity method is a one-line consolidation, the details reported in the investor's financial statements under the equity method will not be the same as would be reported in consolidated financial statements under Subtopic 810-10. All intra-entity transactions are eliminated in consolidation under that Subtopic, but under the equity method, intra-entity profits or losses are normally eliminated only on assets still remaining on the books of an investor or an investee. ##### [323-10-35-9](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-9) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:8133b497ffff8f355918cf08f33e03694f5bd2a19edffbd250ee2bb401f38a3b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [810-10-45-18](https://asc.understandingaccounting.org/asc/810/10/#810-10-45-18) provides for complete elimination of intra-entity income or losses in consolidation and states that the elimination of intra-entity income or loss may be allocated between the [parent](https://asc.understandingaccounting.org/glossary/p/#parent "An entity that has a controlling financial interest in one or more subsidiaries. (Also, an entity that is the primary beneficiary of a variable interest entity.)") and the [noncontrolling interests](https://asc.understandingaccounting.org/glossary/n/#noncontrolling-interest "The portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. A noncontrolling interest is sometimes called a minority interest."). Whether all or a proportionate part of the intra-entity income or loss shall be eliminated under the equity method depends largely on the relationship between the investor and investee. ##### [323-10-35-10](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-10) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:9bc54e6d93a8a2b0d034817e0ca97e1f26408f95fe988d1beaa886c8ed99ea16 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an investor controls an investee through majority voting interest and enters into a transaction with an investee that is not at arm's length, none of the intra-entity profit or loss from the transaction shall be recognized in income by the investor until it has been realized through transactions with third parties. The same treatment applies also for an investee established with the cooperation of an investor (including an investee established for the financing and operation or leasing of property sold to the investee by the investor) if control is exercised through guarantees of indebtedness, extension of credit and other special arrangements by the investor for the benefit of the investee, or because of ownership by the investor of warrants, convertible securities, and so forth issued by the investee. ##### [323-10-35-11](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-11) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:ab54e15214861cd234125af6180a90dfcbb99b353758abe4b9c5dcc9c6aa3632 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In other circumstances, it would be appropriate for the investor to eliminate intra-entity profit in relation to the investor's common stock interest in the investee. In these circumstances, the percentage of intra-entity profit to be eliminated would be the same regardless of whether the transaction is downstream (that is, a sale by the investor to the investee) or upstream (that is, a sale by the investee to the investor). ##### [323-10-35-12](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-12) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:a64b4e3e79189018a25368f6d64776fb3ef6d1fe5ddcd316bf21c15c904cf2d0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 3 (see paragraph [323-10-55-27](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-27)) illustrates the application of this guidance. ##### [323-10-35-13](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-13) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:c47a00e61268626d9f5dd2ceb7311cc78e5688e4af3d797e5d7a3ee07e4f5d31 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A difference between the cost of an investment and the amount of underlying equity in net assets of an investee shall be accounted for as if the investee were a consolidated subsidiary. Paragraph [350-20-35-58](https://asc.understandingaccounting.org/asc/350/20/#350-20-35-58) requires that the portion of that difference that is recognized as goodwill not be amortized. However, if an entity within the scope of paragraph [350-20-15-4](https://asc.understandingaccounting.org/asc/350/20/#350-20-15-4)elects the accounting alternative for amortizing goodwill in Subtopic 350-20, the portion of that difference that is recognized as goodwill shall be amortized on a straight-line basis over 10 years, or less than 10 years if the entity demonstrates that another useful life is more appropriate. Paragraph [350-20-35-59](https://asc.understandingaccounting.org/asc/350/20/#350-20-35-59) explains that equity method goodwill shall not be reviewed for impairment in accordance with paragraph [350-20-35-58](https://asc.understandingaccounting.org/asc/350/20/#350-20-35-58). However, equity method investments shall continue to be reviewed for impairment in accordance with paragraph [323-10-35-32](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-32). ##### [323-10-35-14](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-14) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:4c570381869e0d36548c3bc728d6ae9669a066039b2ea79a3c19676dbdcfdc75 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraph [323-10-35-34](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-34) for related guidance when an investment becomes subject to the equity method. ##### [323-10-35-14A](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-14A) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:c34bddddf23885ecb7d5e5c74c75773457c3e73b2e39bc15b24e42c4768cb674 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a contingency is resolved relating to a liability recognized in accordance with the guidance in paragraph [323-10-25-2A](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-2A) and the consideration is issued or becomes issuable, any excess of the fair value of the contingent consideration issued or issuable over the amount that was recognized as a liability shall be recognized as an additional cost of the investment. If the amount initially recognized as a liability exceeds the fair value of the consideration issued or issuable, that excess shall reduce the cost of the investment. ##### [323-10-35-15](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-15) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:2079006ea6db39f4404fe5245b79cc21de7fcd1191a5d2d5edbdc4ba906721cd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A transaction of an investee of a capital nature that affects the investor's share of stockholders' equity of the investee shall be accounted for on a step-by-step basis. ##### [323-10-35-15A](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-15A) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:a858924774539706ab039b02a4811babf6a3d301501370bc2b25a1d9ce68020e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For guidance on a share issuance by an investee, see paragraph [323-10-40-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-40-1). ##### [323-10-35-16](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-16) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:4142cbfbdd405a053301e4de27781c39f57841d3224d5a87081c015588960840 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an investee has outstanding cumulative preferred stock, an investor shall compute its share of earnings (losses) after deducting the investee's preferred [dividends](https://asc.understandingaccounting.org/glossary/d/#dividends "Dividends paid or payable in cash, other assets, or another class of stock and does not include stock dividends or stock splits."), whether or not such dividends are declared. ##### [323-10-35-17](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-17) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:a9add508ae5a762fccca24aff440ca4307aff67944b6d3e099f687b1411246bf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Dividends received from an investee shall reduce the carrying amount of the investment. ##### [323-10-35-18](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-18) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:a559168a0782ff5cbfc16e8c587dbc8ead21f7ec8838f1a325c2adc9e18cdb50 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investor shall record its proportionate share of the investee's equity adjustments for other comprehensive income (unrealized gains and losses on available-for-sale securities; foreign currency items; and gains and losses, prior service costs or credits, and transition assets or obligations associated with pension and other postretirement benefits to the extent not yet recognized as components of net periodic benefit cost) as increases or decreases to the investment account with corresponding adjustments in equity. See paragraph [323-10-35-37](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-37) for related guidance to be applied upon discontinuation of the equity method. #### Equity Method Losses ##### [323-10-35-19](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-19) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:61b923118af239590e7bec05b99312c5783fe711bf82a79ae4a9968f3eb1cafd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investor's share of losses of an investee may equal or exceed the carrying amount of an investment accounted for by the equity method plus advances made by the investor. An equity method investor shall continue to report losses up to the investor's investment carrying amount, including any additional financial support made or committed to by the investor. Additional financial support made or committed to by the investor may take the form of any of the following: 1. a Capital contributions to the investee 2. b Investments in additional common stock of the investee 3. c Investments in preferred stock of the investee 4. d Loans to the investee 5. e Investments in debt securities (including mandatorily redeemable preferred stock) of the investee 6. f Advances to the investee. See paragraphs [323-10-35-24](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-24) and [323-10-35-28](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-28) for additional guidance if the investor has other investments in the investee. ##### [323-10-35-20](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-20) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:7fe0c6fbf6913fe673e06ecf54c5c8d90ab6609d29e2447268b05db2df5ffec1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The investor ordinarily shall discontinue applying the equity method if the investment (and net advances) is reduced to zero and shall not provide for additional losses unless the investor has guaranteed obligations of the investee or is otherwise committed to provide further financial support for the investee. ##### [323-10-35-21](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-21) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:c12cdd970ddf8f5523a814d03ef998b7a1bfce5f5988ff4e5923d9a4b26227ab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investor shall, however, provide for additional losses if the imminent return to profitable operations by an investee appears to be assured. For example, a material, nonrecurring loss of an isolated nature may reduce an investment below zero even though the underlying profitable operating pattern of an investee is unimpaired. ##### [323-10-35-22](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-22) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:4780cac3a8a43e0dded1d020337a20b6b5ef140c2285d0ab6daab713d6eb5c57 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the investee subsequently reports net income, the investor shall resume applying the equity method only after its share of that net income equals the share of net losses not recognized during the period the equity method was suspended. ##### [323-10-35-23](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-23) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:645098f54461584354f411e06c4d96f900e092e8b4766309def3b34a518e6f77 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in the following paragraph applies to situations in which both of the following conditions exist: 1. a An investor is not required to advance additional funds to an investee. 2. b Previous losses have reduced the common stock investment account to zero. ##### [323-10-35-24](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-24) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:6c588b1de333789051fed17bbee1a45be9abfe83a4a7ac918288f57460004f23 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the circumstances described in paragraph [323-10-35-23](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-23), the investor shall continue to report its share of equity method losses in its statement of operations to the extent of and as an adjustment to the adjusted basis of the other investments in the investee. The order in which those equity method losses should be applied to the other investments shall follow the seniority of the other investments (that is, priority in liquidation). For each period, the adjusted basis of the other investments shall be adjusted for the equity method losses, then the investor shall apply Subtopic 310-10, 320-10, 321-10, 326-20, or 326-30 to the other investments, as applicable. ##### [323-10-35-25](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-25) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:50043bf3f51a4e42945edbe80c421aba10bb684b250fdfedc0df85853f37e3bb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The cost basis of the other investments is the original cost of those investments adjusted for the effects of write-downs, unrealized holding gains and losses on debt securities classified as trading in accordance with Subtopic 320-10 or equity securities accounted for in accordance with Subtopic 321-10 and amortization of any discount or premium on debt securities or financing receivables. The adjusted basis is the cost basis adjusted for the allowance for credit losses account recorded in accordance with Topic 326 on measurement of credit losses for an investee financing receivable and debt security and the cumulative equity method losses applied to the other investments. Equity method income subsequently recorded shall be applied to the adjusted basis of the other investments in reverse order of the application of the equity method losses (that is, equity method income is applied to the more senior investments first). ##### [323-10-35-26](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-26) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:3253b45b091276ebdf8a570927853adbb817db366444f70d6c30bf3d70416aef Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the investor has other investments in the investee (including, but not limited to, preferred stock, debt securities, and loans to the investee) that are within the scope of Subtopic 310-10, 320-10, or 321-10, the investor should perform all of the following steps to determine the amount of equity method loss to report at the end of a period: 1. a Apply this Subtopic to determine the maximum amount of equity method losses. 2. b Determine whether the adjusted basis of the other investment(s) in the investee is positive, and do the following: 1. 1 If the adjusted basis is positive, the adjusted basis of the other investments shall be adjusted for the amount of the equity method loss based on the investments' seniority. Paragraph [320-10-35-3](https://asc.understandingaccounting.org/asc/320/10/#320-10-35-3) explains that, for investments accounted for in accordance with Subtopic 320-10, this adjusted basis becomes the debt security's basis from which subsequent changes in fair value are measured. Paragraph [321-10-35-5](https://asc.understandingaccounting.org/asc/321/10/#321-10-35-5) explains that for investments accounted for in accordance with Subtopic 321-10, this adjusted basis becomes the equity security's basis from which subsequent changes in fair value are measured. 2. 2 If the adjusted basis reaches zero, equity method losses shall cease being reported; however, the investor shall continue to track the amount of unreported equity method losses for purposes of applying paragraph [323-10-35-20](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-20). If one of the other investments is sold at a time when its carrying value exceeds its adjusted basis, the difference between the cost basis of that other investment and its adjusted basis at the time of sale represents equity method losses that were originally applied to that other investment but effectively reversed upon its sale. Accordingly, that excess represents unreported equity method losses that shall continue to be tracked before future equity method income can be reported. Example 4 (see paragraph [323-10-55-30](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-30)) illustrates the application of (b)(2). 3. c After applying this Subtopic, apply Subtopics 310-10, 320-10, 321-10, 326-20, and 326-30 to the adjusted basis of the other investments in the investee, as applicable. 4. d Apply appropriate generally accepted accounting principles (GAAP) to other investments that are not within the scope of Subtopic 310-10, 320-10, 321-10, 326-20, or 326-30. Example 4 (see paragraph [323-10-55-30](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-30)) illustrates the application of this guidance. ##### [323-10-35-27](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-27) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:59fd62f52838927d66c7318b8aabd69db853023059a73e79607ae967bfa53b0a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in the following paragraph applies if all of the following conditions exist: 1. a An investor owns common stock (or in-substance common stock) and other investments in an investee. 2. b The investor has the ability to exercise significant influence over the operating and financial policies of the investee. 3. c The investor is not required to advance additional funds to the investee. 4. d Previous losses have reduced the common stock investment account to zero. ##### [323-10-35-28](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-28) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:5896a36cbe7386ee42359de1af3b1f147be8184e4eac9d737a88af6e47975106 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the circumstances described in the preceding paragraph, the investor shall not recognize equity method losses based solely on the percentage of investee common stock held by the investor. Example 5 (see paragraph [323-10-55-48](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-48)) illustrates two possible approaches for recognizing equity method losses in such circumstances. ##### [323-10-35-29](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-29) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:4f33eff020f0421802062ccf710bcb04a0c2f73543b2cd781450caa1d2008556 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a subsequent investment in an investee does not result in the ownership interest increasing from one of significant influence to one of control and, in whole or in part, represents, in substance, the funding of prior losses, the investor should recognize previously suspended losses only up to the amount of the additional investment determined to represent the funding of prior losses (see (b)). Whether the investment represents the funding of prior losses, however, depends on the facts and circumstances. Judgment is required in determining whether prior losses are being funded and all available information should be considered in performing the related analysis. All of the following factors shall be considered; however, no one factor shall be considered presumptive or determinative: 1. a Whether the additional investment is acquired from a third party or directly from the investee. If the additional investment is purchased from a third party and the investee does not obtain additional funds either from the investor or the third party, it is unlikely that, in the absence of other factors, prior losses are being funded. 2. b The fair value of the consideration received in relation to the value of the consideration paid for the additional investment. For example, if the fair value of the consideration received is less than the fair value of the consideration paid, it may indicate that prior losses are being funded to the extent that there is disparity in the value of the exchange. 3. c Whether the additional investment results in an increase in ownership percentage of the investee. If the investment is made directly with the investee, the investor shall consider the form of the investment and whether other investors are making simultaneous investments proportionate to their interests. Investments made without a corresponding increase in ownership or other interests, or a pro rata equity investment made by all existing investors, may indicate that prior losses are being funded. 4. d The seniority of the additional investment relative to existing equity of the investee. An investment in an instrument that is subordinate to other equity of the investee may indicate that prior losses are being funded. ##### [323-10-35-30](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-30) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:aeaa69ceee0baf8df20648bdd27945ec2f719fba878f7055d7814c1e7e034626 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Upon making the additional investment, the investor should evaluate whether it has become otherwise committed to provide financial support to the investee. #### Decrease in Investment Value ##### [323-10-35-31](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-31) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:a9ebf88a1dadebdf5f02a0268debdd6bdbef19142fe12568ca59d635d515c59b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A series of operating losses of an investee or other factors may indicate that a decrease in value of the investment has occurred that is other than temporary and that shall be recognized even though the decrease in value is in excess of what would otherwise be recognized by application of the equity method. ##### [323-10-35-32](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-32) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:8d35d283afe10fb4008653f553a398f77866efdac4f73212001d603dd9deea68 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A loss in value of an investment that is other than a temporary decline shall be recognized. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment. A current fair value of an investment that is less than its carrying amount may indicate a loss in value of the investment. However, a decline in the quoted market price below the carrying amount or the existence of operating losses is not necessarily indicative of a loss in value that is other than temporary. All are factors that shall be evaluated. ##### [323-10-35-32A](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-32A) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:92e325ae3a574dbb39da4f4061af547232132e5d5e2f07ecd94906889898de9c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An equity method investor shall not separately test an investee's underlying asset(s) for impairment. However, an equity investor shall recognize its share of any impairment charge recorded by an investee in accordance with the guidance in paragraphs [323-10-35-13](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-13) and [323-10-45-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-45-1) and consider the effect, if any, of the impairment on the investor's basis difference in the assets giving rise to the investee's impairment charge. #### Change in Level of Ownership or Degree of Influence ##### [323-10-35-33](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-33) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:50709d8ce9e3e006177b21d7bb6fedea19772c24fcc798c0abbcff869d859a3c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [323-10-15-12](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-12) explains that an investment in common stock of an investee that was previously accounted for on other than the equity method may become qualified for use of the equity method by an increase in the level of ownership described in paragraph [323-10-15-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-3) (that is, acquisition of additional voting stock by the investor, acquisition or retirement of voting stock by the investee, or other transactions). If an investment qualifies for use of the equity method (that is, falls within the scope of this Subtopic), the investor shall add the cost of acquiring the additional interest in the investee (if any) to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The current basis of the investor's previously held interest in the investee shall be remeasured in accordance with paragraph [321-10-35-1](https://asc.understandingaccounting.org/asc/321/10/#321-10-35-1) or [321-10-35-2](https://asc.understandingaccounting.org/asc/321/10/#321-10-35-2), as applicable, immediately before adopting the equity method of accounting. For purposes of applying paragraph [321-10-35-2](https://asc.understandingaccounting.org/asc/321/10/#321-10-35-2) to the investor's previously held interest, if the investor identifies observable price changes in orderly transactions for an identical or a similar investment of the same issuer that results in it applying Topic 323, the entity shall remeasure its previously held interest at fair value immediately before applying Topic 323. ##### [323-10-35-34](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-34) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:572c15f1f520b144460a751f0e7b924fa59617013a5fb6df508577d384b91533 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The carrying amount of an investment in common stock of an investee that qualifies for the equity method of accounting as described in paragraph [323-10-15-12](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-12) may differ from the underlying equity in net assets of the investee. The difference shall affect the determination of the amount of the investor's share of earnings or losses of an investee as if the investee were a consolidated subsidiary. However, if the investor is unable to relate the difference to specific accounts of the investee, the difference shall be recognized as goodwill and not be amortized in accordance with Topic 350. ##### [323-10-35-35](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-35) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:09310400ea11c80b19b9bca2e86670353bfe8a42edd96bd0c56c57afeb1cbe98 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Sales of stock of an investee by an investor shall be accounted for as gains or losses equal to the difference at the time of sale between selling price and carrying amount of the stock sold. ##### [323-10-35-36](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-36) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:a46020527d947f3f50bc56676ad7bc5055c248ab4443e675463b8115399c2515 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment in voting stock of an investee may fall below the level of ownership described in paragraph [323-10-15-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-3) from sale of a portion of an investment by the investor, sale of additional stock by an investee, or other transactions and the investor may thereby lose the ability to influence policy, as described in that paragraph. An investor shall discontinue accruing its share of the earnings or losses of the investee for an investment that no longer qualifies for the equity method. The earnings or losses that relate to the stock retained by the investor and that were previously accrued shall remain as a part of the carrying amount of the investment. The investment account shall not be adjusted retroactively under the conditions described in this paragraph. Upon the discontinuance of the equity method, an investor shall remeasure the retained investment in accordance with paragraph [321-10-35-1](https://asc.understandingaccounting.org/asc/321/10/#321-10-35-1) or [321-10-35-2](https://asc.understandingaccounting.org/asc/321/10/#321-10-35-2), as applicable. For purposes of applying paragraph [321-10-35-2](https://asc.understandingaccounting.org/asc/321/10/#321-10-35-2) to the investor's retained investment, if the investor identifies observable price changes in orderly transactions for the identical or a similar investment of the same issuer that results in it discontinuing the equity method, the entity shall remeasure its retained investment at fair value immediately after discontinuing the equity method. Topic 321 also addresses the subsequent accounting for investments in equity securities that are not consolidated or accounted for under the equity method. ##### [323-10-35-37](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-37) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:2f62f910dc60ef9955bb205d8dedfeecea851cddbaa51bdf1d569d3e8082d08e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [323-10-35-39](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-39) provides guidance on how an investor shall account for its proportionate share of an investee's equity adjustments for other comprehensive income in all of the following circumstances: 1. a A loss of significant influence 2. b A loss of control that results in accounting for the investment in accordance with Topic 321 3. c Discontinuation of the equity method for an investment in a limited partnership because the conditions in paragraph [970-323-25-6](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-6) are met for accounting for the investment in accordance with Topic 321. ##### [323-10-35-38](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-38) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:969fc7821fea35bef185b6868551f5f2dd9c134e059f97b60b3ac0f4a69fe7f3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [323-10-35-39](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-39) does not provide guidance for entities that historically have not recorded their proportionate share of an investee's equity adjustments for other comprehensive income. That paragraph does not provide guidance on the measurement and recognition of a gain or loss on the sale of all or a portion of the underlying investment. ##### [323-10-35-39](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-39) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:05.397Z to 2026-09-09T23:40:05.397Z Record version: sha256:4a69760445bc0ed38fe850deb52a95a740a61d7453e75a5d5ebc75903f7f2315 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the circumstances described in paragraph [323-10-35-37](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-37), an investor's proportionate share of an investee's equity adjustments for other comprehensive income shall be offset against the carrying value of the investment at the time significant influence is lost. To the extent that the offset results in a carrying value of the investment that is less than zero, an investor shall both: 1. a Reduce the carrying value of the investment to zero 2. b Record the remaining balance in income. Source downloaded (UTC): 2026-09-09T23:40:09.337Z to 2026-09-09T23:40:09.337Z Record version: sha256:bb207b220a82604dd5013efcf3eab28d1756449f318d7055160947d972020f67 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-40: 40 Derecognition [Read section](https://asc.understandingaccounting.org/asc/323/10/#40-derecognition) SEC content: no #### Investee Capital Transactions ##### [323-10-40-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-40-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:09.337Z to 2026-09-09T23:40:09.337Z Record version: sha256:37b78aa701d597f15c2e547f8b9800bcdd9a0fed5cf44a1b650c44cdaea53b9e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An equity method investor shall account for a share issuance by an investee as if the investor had sold a proportionate share of its investment. Any gain or loss to the investor resulting from an investee's share issuance shall be recognized in earnings. Source downloaded (UTC): 2026-09-09T23:40:12.666Z to 2026-09-09T23:40:12.666Z Record version: sha256:67baacf05bc81b56570702802e57dd3f68d9b41429dc5517fca73430529ea62c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-45: 45 Other Presentation Matters [Read section](https://asc.understandingaccounting.org/asc/323/10/#45-other-presentation-matters) SEC content: no #### The Equity Method—Overall Guidance ##### [323-10-45-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-45-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:12.666Z to 2026-09-09T23:40:12.666Z Record version: sha256:8c5b9424391d58289b62d9cfece98a51b283d29fe646a6b066c31613d48b13d7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under the equity method, an investment in [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.") shall be shown in the balance sheet of an [investor](https://asc.understandingaccounting.org/glossary/i/#investor "A business entity that holds an investment in voting stock of another entity.") as a single amount. Likewise, an investor's share of earnings or losses from its investment shall be shown in its income statement as a single amount. ##### [323-10-45-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-45-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:12.666Z to 2026-09-09T23:40:12.666Z Record version: sha256:a2cec60d0a226c02ba2ab9c340368b257bd265fc7c24db7ede374453c0747277 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The investor's share of accounting changes reported in the financial statements of the [investee](https://asc.understandingaccounting.org/glossary/i/#investee "An entity that issued an equity instrument that is held by an investor.") shall be classified separately. #### Reporting Comprehensive Income ##### [323-10-45-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-45-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:12.666Z to 2026-09-09T23:40:12.666Z Record version: sha256:241a6a36bf52c9c270b1faf3324a94b1a2698b5224361bd7b3168df3671e8b10 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investor may combine its proportionate share of investee other comprehensive income amounts with its own other comprehensive income components and present the aggregate of those amounts in the statement in which other comprehensive income is presented. ##### [323-10-45-4](https://asc.understandingaccounting.org/asc/323/10/#323-10-45-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:12.666Z to 2026-09-09T23:40:12.666Z Record version: sha256:bfed43e57b8cde56e30b9c42599d385ef87cb8179c448462499b3d5690663143 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2013-08](https://asc.understandingaccounting.org/updates/asu-2013-08/). Source downloaded (UTC): 2026-09-09T23:40:14.591Z to 2026-09-09T23:40:14.591Z Record version: sha256:a51586eec2ede6fe4970f989da415c17fa4b0fde7a79cae98ed50405ae168bb9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-50: 50 Disclosure [Read section](https://asc.understandingaccounting.org/asc/323/10/#50-disclosure) SEC content: no ##### [323-10-50-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-50-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:14.591Z to 2026-09-09T23:40:14.591Z Record version: sha256:b4b89cac244c44f4db1576a3954f946cd2b6c4897233070626870c8111935e49 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [323-10-15-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-3) explains that references in this Subtopic to [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.") refer to both common stock and [in-substance common stock](https://asc.understandingaccounting.org/glossary/i/#in-substance-common-stock "An investment in an entity that has risk and reward characteristics that are substantially similar to that entity's common stock.") that give the [investor](https://asc.understandingaccounting.org/glossary/i/#investor "A business entity that holds an investment in voting stock of another entity.") the ability to exercise [significant influence](https://asc.understandingaccounting.org/glossary/s/#significant-influence "Paragraphs 323-10-15-6323-10-15-7323-10-15-8323-10-15-9323-10-15-10323-10-15-11 define significant influence.") over operating and financial policies of an [investee](https://asc.understandingaccounting.org/glossary/i/#investee "An entity that issued an equity instrument that is held by an investor.") even though the investor holds 50 percent or less of the common stock or in-substance common stock (or both common stock and in-substance common stock). ##### [323-10-50-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-50-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:14.591Z to 2026-09-09T23:40:14.591Z Record version: sha256:ae7886dcf904de8359fdb0db52345222e1edf1963b4b5b26d253ee4f616be3ac Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The significance of an investment to the investor's financial position and results of operations shall be considered in evaluating the extent of disclosures of the financial position and results of operations of an investee. If the investor has more than one investment in common stock, disclosures wholly or partly on a combined basis may be appropriate. ##### [323-10-50-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-50-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:14.591Z to 2026-09-09T23:40:14.591Z Record version: sha256:7b2e436b52bb0ec754b5218ab6b67b995fafd98cdc5c583b83de2cdca09d8063 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All of the following disclosures generally shall apply to the equity method of accounting for investments in common stock: 1. a Financial statements of an investor shall disclose all of the following parenthetically, in notes to financial statements, or in separate statements or schedules: 1. 1 The name of each investee and percentage of ownership of common stock. 2. 2 The accounting policies of the investor with respect to investments in common stock. Disclosure shall include the names of any significant investee entities in which the investor holds 20 percent or more of the voting stock, but the common stock is not accounted for on the equity method, together with the reasons why the equity method is not considered appropriate, and the names of any significant investee corporations in which the investor holds less than 20 percent of the voting stock and the common stock is accounted for on the equity method, together with the reasons why the equity method is considered appropriate. 3. 3 The difference, if any, between the amount at which an investment is carried and the amount of underlying equity in net assets and the accounting treatment of the difference. 2. b For those investments in common stock for which a quoted market price is available, the aggregate value of each identified investment based on the quoted market price usually shall be disclosed. This disclosure is not required for investments in common stock of [subsidiaries](https://asc.understandingaccounting.org/glossary/s/#subsidiary "An entity, including an unincorporated entity such as a partnership or trust, in which another entity, known as its parent, holds a controlling financial interest. (Also, a variable interest entity that is consolidated by a primary beneficiary.)"). 3. c If investments in common stock of [corporate joint ventures](https://asc.understandingaccounting.org/glossary/c/#corporate-joint-venture "A corporation owned and operated by a small group of entities (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group. A government may also be a member of the group. The purpose of a corporate joint venture frequently is to share risks and rewards in developing a new market, product or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities. A corporate joint venture also usually provides an arrangement under which each joint venturer may participate, directly or indirectly, in the overall management of the joint venture. Joint venturers thus have an interest or relationship other than as passive investors. An entity that is a subsidiary of one of the joint venturers is not a corporate joint venture. The ownership of a corporate joint venture seldom changes, and its stock is usually not traded publicly. A noncontrolling interest held by public ownership, however, does not preclude a corporation from being a corporate joint venture.") or other investments accounted for under the equity method are, in the aggregate, material in relation to the financial position or results of operations of an investor, it may be necessary for summarized information as to assets, liabilities, and results of operations of the investees to be disclosed in the notes or in separate statements, either individually or in groups, as appropriate. 4. d Conversion of outstanding convertible securities, exercise of outstanding options and warrants, and other contingent issuances of an investee may have a significant effect on an investor's share of reported earnings or losses. Accordingly, material effects of possible conversions, exercises, or contingent issuances shall be disclosed in notes to financial statements of an investor. Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:3fe6dc893cf41e2bd05979c8bf24532661cc65eee0f30c7d318bfb630652e36b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/323/10/#55-implementation-guidance-and-illustrations) SEC content: no #### Illustrations ##### [323-10-55-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:8a079636ebb0c2e8d3e910d32bbec2d76e63460cd630ba4fe08b22b6d685e904 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the application of the characteristics described in paragraphs [323-10-15-13](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-13) and [323-10-15-15](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-15) to various investments: 1. a Subordination substantially similar to [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.") (Case A) 2. b Subordination not substantially similar to common stock (Case B) 3. c Investment expected to participate in risks and rewards of ownership (Case C) 4. d Investment not expected to participate in risks and rewards of ownership (Case D) 5. e [Investee](https://asc.understandingaccounting.org/glossary/i/#investee "An entity that issued an equity instrument that is held by an investor.") not obligated to transfer substantive value (Case E) 6. f Investee obligated to transfer substantive value (Case F). ##### [323-10-55-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:c6775f2245a9d9ec52a5be1bb5685dc1ea500113ba086b7c1aa5442768668176 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Each Case provides sufficient information to reach a conclusion about whether the investment contemplated in the Case has the characteristic of [in-substance common stock](https://asc.understandingaccounting.org/glossary/i/#in-substance-common-stock "An investment in an entity that has risk and reward characteristics that are substantially similar to that entity's common stock.") being demonstrated in the Case. In each Case, assume that the [investor](https://asc.understandingaccounting.org/glossary/i/#investor "A business entity that holds an investment in voting stock of another entity.") is performing the analysis because it has determined that it is not required to consolidate the investee under Subtopic 810-10, that it has the ability to exercise [significant influence](https://asc.understandingaccounting.org/glossary/s/#significant-influence "Paragraphs 323-10-15-6323-10-15-7323-10-15-8323-10-15-9323-10-15-10323-10-15-11 define significant influence.") over the operating and financial policies of the investee, and that its investment does not meet the definition of a derivative instrument under Subtopic 815-10. ##### [323-10-55-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:d6ddbc0ba33f8c593ef41973c03d01ebb8041140e2f4a094ea9ecc38d1fdc364 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investor organized Investee and acquired all of the common stock of Investee on January 1, 2003. On January 1, 2004, Investee sells 100,000 shares of preferred stock to a group of investors in exchange for $10,000,000 ($100 par value; liquidation preference of $100 per share). The fair value of the entity's common stock is approximately $100,000 on January 1, 2004. ##### [323-10-55-4](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:fdf898b5825c4a34d5f82e891b629c56382fc337fbde752a08d2a52f4a5a9511 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Case, the stated liquidation preference is equal to the fair value of the preferred stock. However, the fair value of the common stock ($100,000), if compared with the fair value of the preferred stock, indicates that Investee has little or no common stock from a fair value perspective. An investor should therefore conclude that the liquidation preference is not substantive and that the subordination characteristics of its preferred stock investment are substantially similar to the subordination characteristics of Investee's common stock. The investor should also evaluate whether the preferred stock has the characteristics in paragraph [323-10-15-13(b) through 15-13(c)](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-13), and paragraphs [323-10-15-14 through 15-15](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-14) (if necessary) to reach a conclusion about whether the preferred stock is in-substance common stock. ##### [323-10-55-5](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:56f46da20c357a683043d8f0b592f0f9124dd2e5386b18ebd2ceaf4dd5894fad Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the same facts and circumstances as in Case A, except that the fair value of Investee's common stock is approximately $15,000,000 on January 1, 2004. ##### [323-10-55-6](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:027e2062f03cff36fb175fae2ef77563d1d0cf4a082fe4bdd8586619dc003ee8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Case, the stated liquidation preference is equal to the fair value of the preferred stock. In addition, Investee has adequate subordinated equity from a fair value perspective (more than little or no subordinated equity) to indicate that the liquidation preference is substantive. An investor therefore should conclude that the subordination characteristics of its preferred stock investment are not substantially similar to the subordination characteristics of Investee's common stock. Accordingly, the preferred stock investment is not in-substance common stock. Evaluation of the characteristics in paragraph [323-10-15-13(b) through 15-13(c)](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-13) and paragraphs [323-10-15-14 through 15-15](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-14) is not required. ##### [323-10-55-7](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:872dc4cbe2616a4ebe6b89c9b75453d3128a3600ae12e9f5010db96531e2f54d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investor purchases a warrant in Investee for $2,003,900 on July 1, 20X4. The warrant enables Investor to acquire 100,000 shares of Investee's common stock at an exercise price of $1.00 per share (total exercise price of $100,000) on or before June 30, 20X5; the warrant does not participate in [dividends](https://asc.understandingaccounting.org/glossary/d/#dividends "Dividends paid or payable in cash, other assets, or another class of stock and does not include stock dividends or stock splits."). The fair value of the common stock is approximately $21.00 per share. The warrant is exercisable at any time. Investor does not expect Investee to declare dividends before exercise. ##### [323-10-55-8](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:4668984125f5cba1140fce79cf6dfe40eef277dd331d948aec50bff0cd6edcac Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investor should evaluate whether the warrant is expected to participate in Investee's earnings (and losses) and capital appreciation (and depreciation) in a manner that is substantially similar to common stock. To evaluate the extent to which the warrant is expected to participate with the common shareholders in Investee's earnings (and losses), Investor should evaluate whether the warrant allows Investor to currently participate in dividends on a basis substantially similar to common stock. In this Case, Investor does not participate in dividends. Investor, however, can exercise the warrant (convert into common stock) at any time, thereby enabling Investor to participate in Investee's earnings (and losses) on an equivalent basis to common stock. Because Investor does not expect Investee to declare dividends before exercise, Investor participates in Investee's earnings in a manner substantially similar to common stock. In addition, warrants that are exercisable into common stock are designed to participate equally with the common shareholders in increases in the Investee's fair value. Therefore, the warrant participates in Investee's capital appreciation. ##### [323-10-55-9](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-9) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:1b1097080257de23b2d1f85c3ef761594bb32405fd9f106eb1658ab9484d8d7a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investor should also evaluate whether the warrant is expected to participate in Investee's capital depreciation in a manner substantially similar to common stock. An investor has alternatives for making this evaluation. In this Case, Investor could compare the current fair value of Investee's common stock with the fair value of the warrant (on an equivalent unit basis) to determine whether the warrant is exposed to capital depreciation in a manner that is substantially similar to the entity's common stock. The current fair value of the Investee's common stock of $21.00 is substantially similar to the current fair value of each warrant of $20.04 (on an equivalent unit basis). Therefore, the warrant's expected participation in Investee's capital depreciation is substantially similar to the common shareholders' participation. This comparison of fair values is different from the paragraph [323-10-15-15](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-15) evaluation that is performed (if necessary) to determine whether the future changes in fair value of the investment are expected to vary directly with the changes in the fair value of the entity's common stock. ##### [323-10-55-10](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-10) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:9dd32250a492a980d13a69737f0d7f2233dab4f66153ed61498e3e035e42d78b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Accordingly, Investor should conclude that, before exercise, the warrants are expected to participate in Investee's earnings (and losses) and capital appreciation (and depreciation) in a manner that is substantially similar to common stock. Investor should also evaluate whether the warrant has the characteristics in paragraph [323-10-15-13(a)](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-13) and [323-10-15-13(c)](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-13) and paragraphs [323-10-15-14 through 15-15](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-14) (if necessary) to reach a conclusion about whether the warrant is in-substance common stock. ##### [323-10-55-11](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-11) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:f3f0f7b31c00968930c78b6231622e62822965c549f316b3bad2920b537b18bb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investor purchases a warrant in Investee for $288,820 on July 1, 20X4. The warrant enables Investor to acquire 100,000 shares of Investee's common stock at an exercise price of $21.00 per share (total exercise price of $2,100,000) on or before June 30, 20X5; the warrant does not participate in dividends. The fair value of the common stock is approximately $21.00 per share. The warrant is exercisable at any time. Investor does not expect Investee to declare dividends before exercise. ##### [323-10-55-12](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-12) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:815733aa17578a1261b2a785a1d9b942239613bf65a7ded468d7ad56a25b9829 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investor should evaluate whether the warrant is expected to participate in Investee's earnings (and losses) and capital appreciation (and depreciation) in a manner that is substantially similar to common stock. To evaluate the extent to which the warrant is expected to participate with the common shareholders in Investee's earnings (and losses), Investor should evaluate whether the warrant allows Investor to currently participate in dividends on a basis substantially similar to common stock. In this Case, Investor does not participate in dividends. Investor, however, can exercise the warrant (convert into common stock) at any time, thereby enabling Investor to participate in Investee's earnings (and losses) on an equivalent basis to common stock. Because Investor does not expect Investee to declare dividends before exercise, Investor participates in Investee's earnings in a manner substantially similar to common stock. In addition, warrants that are exercisable into common stock are designed to participate equally with the common shareholders in increases in Investee's fair value. Therefore, the warrant participates in Investee's capital appreciation. ##### [323-10-55-13](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-13) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:29aac1a422607405b56d03a14439c1f679fd5f686f5bed93e5a2735ffc9f84ca Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investor should also evaluate whether the warrant is expected to participate in Investee's capital depreciation in a manner substantially similar to common stock. An investor has alternatives for making this evaluation. In this Case, Investor could compare the current fair value of Investee's common stock with the current fair value of the warrant (on an equivalent unit basis) to determine whether the warrant is exposed to capital depreciation in a manner that is substantially similar to the entity's common stock. The current fair value of the Investee's common stock of $21.00 is substantially different from the current fair value of each warrant of $2.88 (on an equivalent unit basis). Therefore, the warrant's expected participation in Investee's capital depreciation is substantially different from the common shareholders' participation. This comparison of fair values is different from the paragraph [323-10-15-15](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-15) evaluation that is performed (if necessary) to determine whether the future changes in fair value of the investment are expected to vary directly with the changes in the fair value of the entity's common stock. ##### [323-10-55-14](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-14) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:dab422ecda6b5dda0e8e2936f7409d4f70c419b6f486bb73634fcf01b412dc5f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Accordingly, Investor should conclude that, before exercise, the warrants are not expected to participate in Investee's earnings (and losses) and capital appreciation (and depreciation) in a manner that is substantially similar to common stock and, accordingly, the warrants are not in-substance common stock. Evaluation of the characteristics in paragraph [323-10-15-13(a)](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-13) and [323-10-15-13(c)](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-13) and paragraphs [323-10-15-14 through 15-15](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-14) is not required. ##### [323-10-55-15](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-15) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:c99c7e6c4ca34a8f1e91362770f1eaddcadfa16f1f4715ef4abc175b395599c4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investor purchases redeemable convertible preferred stock in Investee for $2,000,000. The investment can be (a) converted into common stock valued at $2,000,000 or (b) redeemed for $10,000 at the option of the Investor. The common shareholders do not have a similar redemption feature. ##### [323-10-55-16](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-16) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:df1ee1e537a3df41623589f497c1f8a68fb988fe58ce0ebba8c1a44729a21805 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investor should evaluate whether exercise of the $10,000 redemption feature obligates Investee to transfer substantive value to Investor and whether the common shareholders do not participate in a similar manner. In this Case, the $10,000 redemption feature is not substantive. Accordingly, Investor should conclude that redeemable convertible preferred stock does not require Investee to transfer substantive value to Investor and that common shareholders do not participate. Investor should also evaluate whether the redeemable convertible preferred stock has the characteristics in paragraph [323-10-15-13(a) through 15-13(b)](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-13) and paragraphs [323-10-15-14 through 15-15](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-14) (if necessary) to reach a conclusion about whether the redeemable convertible preferred stock is in-substance common stock. ##### [323-10-55-17](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-17) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:4d0848e6c75dc27de544d8da3ae91d45c9bb9df7aa81f778a69fe44c57dbf77f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investor purchases redeemable convertible preferred stock in Investee for $2,000,000. The investment can be (a) converted into common stock valued at $2,000,000 or (b) redeemed for $2,000,000 at the option of the Investor. The common shareholders do not have a similar redemption feature. Investor expects that Investee will have the ability to pay the redemption amount. ##### [323-10-55-18](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-18) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:85fc9e2db16e3ca392ca528927f249edde2090157edeed4f7c1febe30cdb454d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investor should evaluate whether exercise of the $2,000,000 redemption feature obligates Investee to transfer substantive value to Investor and whether the common shareholders do not participate in a similar manner. In this Case, the $2,000,000 redemption feature is substantive because the redemption amount is substantive as compared to the fair value of the investment and, based on Investor's expectation as of the date that the investment was made, Investee has the ability to pay the redemption amount. Accordingly, Investor shall conclude that redeemable convertible preferred stock requires Investee to transfer substantive value to Investor and that common shareholders do not participate. Accordingly, the redeemable convertible preferred stock is not in-substance common stock. Evaluation of the characteristics in paragraph [323-10-15-13(a) through 15-13(b)](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-13) and paragraphs [323-10-15-14 through 15-15](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-14) is not required. ##### [323-10-55-19](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-19) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:ce743f7f367bfb7122c0ae8bcee3f4a75111bde3b8393aa0ea63bfe60fe26fc2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [323-10-25-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-3) and [323-10-30-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-30-3) for share-based compensation by an investor granted to employees of an equity method investee. This Example is equally applicable to share-based awards granted by an investor to nonemployees that provide goods or services to an equity method investee that are used or consumed in the investee's operations. ##### [323-10-55-20](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-20) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:5e5f2333a073e23ae782e8b43871258163f1481cda39bddb9878e760dcdf7d5e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A owns a 40 percent interest in Entity B and accounts for its investment under the equity method. On January 1, 20X1, Entity A grants 10,000 stock options (in the stock of Entity A) to employees of Entity B. The stock options cliff-vest in three years. If an employee of Entity B fails to vest in a stock option, the option is returned to Entity A (that is, Entity B does not retain the underlying stock). The owners of the remaining 60 percent interest in Entity B have not shared in the funding of the stock options granted to employees of Entity B on any basis and Entity A was not obligated to grant the stock options under any preexisting agreement with Entity B or the other investors. Entity B will capitalize the share-based compensation costs recognized over the first year of the three-year vesting period as part of the cost of an internally constructed fixed asset (the internally constructed fixed asset will be completed on December 31, 20X1). ##### [323-10-55-21](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-21) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:747723916d64387f1ad9d4c0550e13e50be2c4f9bf259301d6d1997380526b8f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Before granting the stock options, Entity A's investment balance is $800,000, and the book value of Entity B's net assets equals $2,000,000. Entity B will not begin depreciating the internally constructed fixed asset until it is complete and ready for its intended use and, therefore, no related depreciation expense (or compensation expense relating to the stock options) will be recognized between January 1, 20X1, and December 31, 20X1. For the years ending December 31, 20X2, and December 31, 20X3, Entity B will recognize depreciation expense (on the internally constructed fixed asset) and compensation expense (for the cost of the stock options relating to Years 2 and 3 of the vesting period). After recognizing those expenses, Entity B has net income of $200,000 for the fiscal years ending December 31, 20X1, December 31, 20X2, and December 31, 20X3. ##### [323-10-55-22](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-22) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:e43201629ce25b4b9a786a7f33865605e1095ea733bf00f5299945d08f7e9f9b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity C also owns a 40 percent interest in Entity B. On January 1, 20X1, before granting the stock options, Entity C's investment balance is $800,000. ##### [323-10-55-23](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-23) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:c7e847369a5eceabcd8fe1e968746531292a19e0794890fbfe0bf520d4a22cab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that the fair value of the stock options granted by Entity A to employees of Entity B is $120,000 on January 1, 20X1. Under Topic 718, the fair value of share-based compensation should be measured at the grant date. This Example assumes that the stock options issued are classified as equity and ignores the effect of forfeitures. ##### [323-10-55-24](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-24) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:c1376a9f8a450f2aa76ea36081c936abdb0d9ab9b09f281cf77698eb9b727f82 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A would make the following journal entries. - ![](https://asc.understandingaccounting.org/asc-img/GUID-41FD6BC9-203E-4446-B405-28C07ED4C93F-low.gif) 12/31/20X1 12/31/20X2 12/31/20X3 To record cost of stock compensation and Entity C's additional investment for costs incurred by Entity A on behalf of investee Entity A (Contributing Investor) Investment in Entity B (a) " $16,000 " " $16,000 " " $16,000 " Expense (b) " 24,000 " " 24,000 " " 24,000 " Additional paid-in capital " $40,000 " " $40,000 " " $40,000 " Entity B (investee) Fixed asset " $40,000 " — — Expense — " $40,000 " " $40,000 " Additional paid-in capital " $40,000 " " $40,000 " " $40,000 " Entity C (noncontributing investor) Investment In Entity B " $16,000 " " $16,000 " " $16,000 " Contribution income (c) " $16,000 " " $16,000 " " $16,000 " To record Entity A's and Entity C's share of the earnings of investee (same entry for both Entity A and Entity C) Entity A and Entity C Investment in Entity B " $80,000 " " $80,000 " " $80,000 " Equity in earnings of Entity B " $80,000 " " $80,000 " " $80,000 " Consolidated impact of all the entries made by Entity A and Entity C Entity A Investment in Entity B " $96,000 " " $96,000 " " $96,000 " Expense " 24,000 " " 24,000 " " 24,000 " Additional paid-in capital " $40,000 " " $40,000 " " $40,000 " Equity in earnings of Entity B " 80,000 " " 80,000 " " 80,000 " Entity C Investment in Entity B " $96,000 " " $96,000 " " $96,000 " Contribution income " $16,000 " " $16,000 " " $16,000 " Equity in earnings of Entity B " 80,000 " " 80,000 " " 80,000 " (a) "Entity A recognizes as an expense the portion of the costs incurred that benefits the other investors (in this Example, 60 percent of the cost or $24,000 in 20X1, 20X2, and 20X3) and recognizes the remaining cost (40 percent) as an increase to the investment in Entity B. As Entity B has recognized the cost associated with the share-based compensation incurred on its behalf, the portion of the cost recognized by Entity A as an increase to its investment in Entity B (40 percent) is expensed in the appropriate period when Entity A recognizes its share of the earnings of Entity B." (b) It may be appropriate to classify the debit (expense) within the same income statement caption as equity in earnings of Entity B. (c) This amount represents Entity C's 40 percent interest in the additional paid-in capital recognized by Entity B related to the cost incurred by the third-party investor. It may be appropriate to classify the credit (income) within the same income statement caption as equity in earnings of Entity B. ##### [323-10-55-25](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-25) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:b47fdad95d62f3a714c4b012f9ef33d0552bac9e4d571e3fcecc9db0cfd6b791 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A rollforward of Entity B's net assets and a reconciliation to Entity A's and Entity C's ending investment accounts follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-14AAB1A9-CDE7-4CD6-BB24-DDCB6D513642-low.gif) 12/31/20X1 12/31/20X2 12/31/20X3 Net assets of Entity B Beginning net assets " $2,000,000 " " $2,240,000 " " $2,480,000 " Contributed capital " 40,000 " " 40,000 " " 40,000 " Net income " 200,000 " " 200,000 " " 200,000 " Ending net assets " $2,240,000 " " $2,480,000 " " $2,720,000 " Entity A's and Entity C's share x 40% x 40% x 40% Entity A's and Entity C's equity in net assets of Entity B " 896,000 " " 992,000 " " 1,088,000 " Entity A's and Entity C's ending investment balance " 896,000 " " 992,000 " " 1,088,000 " Remaining unamortized basis difference ##### [323-10-55-26](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-26) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:bf5451bc0d830aab18ebae5e735e5e323416717c8df9c9b73f52dd3bd7feed24 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A summary of the calculation of share-based compensation cost by year follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-2E005D9B-0D66-4427-9956-FB4328CBA6A1-low.gif) Calculation of the Share-Based Compensation Cost by Year Year Ended A = Grant Date Fair Value of Options B = % Vested C = (A x B) Amount of Cumulative Compensation Cost to Be Recognized D = Cumulative Cost Previously Recognized E = C - D Current Year Cost 20X1 " $120,000 " 33% " $40,000 " $- " $40,000 " 20X2 " $120,000 " 66% " $80,000 " " $40,000 " " $40,000 " 20X3 " $120,000 " 100% " $120,000 " " $80,000 " " $40,000 " ##### [323-10-55-27](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-27) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:85adc565da96cfec11de52bd6f51d6a382c8caed9f255741ad25a1348094db5b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate how eliminations of intra-entity profits might be made in accordance with paragraph [323-10-35-7](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-7). Both Cases assume that an investor owns 30 percent of the common stock of an investee, the investment is accounted for under the equity method, the income tax rate to both the investor and the investee is 40 percent, the inventory is a good that is an output of the entity's ordinary activities, and the contract is with a customer that is within the scope of Topic 606 on revenue from contracts with customers: 1. a Investor sells inventory downstream to investee (Case A) 2. b Investee sells inventory upstream to investor (Case B). ##### [323-10-55-28](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-28) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:98770a312d91a1f5c6a59f49d6faf7c6f3094f592a09e5aa4ca3f54372b6a45d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume an investor sells inventory items to the investee (downstream). At the investee's balance sheet date, the investee holds inventory for which the investor has recorded a gross profit of $100,000. The investor's net income would be reduced $18,000 to reflect a $30,000 reduction in gross profit and a $12,000 reduction in income tax expense. The elimination of intra-entity profit might be reflected in the investor's balance sheet in various ways. The income statement and balance sheet presentations will depend on what is the most meaningful in the circumstances. ##### [323-10-55-29](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-29) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:c5e9f30ed79d06d39e66f4605c14715900865bcdec943bba1bd389b10afdfe1e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume an investee sells inventory items to the investor (upstream). At the investor's balance sheet date, the investor holds inventory for which the investee has recorded a gross profit of $100,000. In computing the investor's equity pickup, $60,000 ($100,000 less 40 percent of income tax) would be deducted from the investee's net income and $18,000 (the investor's share of the intra-entity gross profit after income tax) would thereby be eliminated from the investor's equity income. Usually, the investor's investment account would also reflect the $18,000 intra-entity profit elimination, but the elimination might also be reflected in various other ways; for example, the investor's inventory might be reduced $18,000. ##### [323-10-55-30](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-30) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:9a3d2fb4f829ba9ce1104d32a450e70e1ddb7c815383b470ba81cdf4c2ea0e06 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraph [323-10-35-24](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-24) to an investment involving all of the following circumstances: 1. a Investor owns 40 percent of the outstanding common stock of Investee. 2. b The common stock investment has been reduced to zero at the beginning of 20X1 because of previous losses. 3. c Investor also has done both of the following: 1. 1 Invested $100 in redeemable preferred stock (that meets the definition of debt security and is classified as an available-for-sale debt security) of Investee (40 percent of the outstanding preferred stock of Investee) 2. 2 Extended $100 in loans to Investee (which represent 40 percent of all loans extended to Investee). 4. d Investor is not obligated to provide any additional funding to Investee. ##### [323-10-55-31](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-31) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:5765afdc7abb6da33ae17068878a38e9645cd07d8d897e51dc1af3c49ad2552e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with paragraphs [323-10-35-7](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-7) and [323-10-35-16](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-16), Investee's operating income and losses in the following table have been adjusted for intra-entity interest on the loan and dividends received or receivable on the preferred stock. As of the beginning of year 20X1, the carrying value of Investor's total combined investment in Investee is $200, as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-3BFCE84F-4B5A-4D24-83EB-7D40E141EFF4-low.gif) Carrying Balance Common stock $- Loan $100 Preferred stock $100 ##### [323-10-55-32](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-32) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:aecb499567293bbf59d31be8b71e336652939ba14d928c42e55699147aeff8b0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the following facts for years 20X1 through 20X7. - ![](https://asc.understandingaccounting.org/asc-img/GUID-FCF9DF25-6E23-4313-9183-0EB7FA3B8D14-low.gif) Year Investee Operating Income (Loss) "Carrying Value of the Loan Under Subtopic 310-10" "Fair Value of the Preferred Stock Under Subtopic 320-10" 20X1 $(200) $95 $90 20X2 (400) 95 90 20X3 - 60 50 20X4 400 95 90 20X5 - 45 55 20X6 - 95 90 20X7 " 1,000 " 100 (a) (a) "Preferred stock was sold for $90 on January 2, 20X7." ##### [323-10-55-33](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-33) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:e6213516b07bac34752464195c7d093aefa393437546958ea96a53cfaeb31be0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Following are the steps Investor would follow in applying the equity method of accounting to its investment in Investee during the years 20X1 through 20X7. ##### [323-10-55-34](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-34) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:49b343d7f0805c57cc0be469bc69929e16f28f709ca7a68d292e4341a7a80f3a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investor would make all of the following entries in 20X1: 1. a In accordance with this Subtopic, record the equity method loss (40% × $200 = $80) to the cost basis of the preferred stock (the next level of capital) at the time that the common stock investment becomes zero. - ![](https://asc.understandingaccounting.org/asc-img/GUID-F130DDD4-F172-4A17-87E1-2E062B654693-low.gif) Equity method loss $80 Preferred stock investment $80 2. b In accordance with Subtopic 326-20 on financial instruments measured at amortized cost, record an allowance for credit losses on the loan. - ![](https://asc.understandingaccounting.org/asc-img/GUID-6DCC3DB0-82E3-447F-A81F-93A502F66B27-low.gif) Credit loss expense $5 Allowance for credit losses $5 3. c In accordance with Subtopic 320-10, record the changes in fair value for the available-for-sale preferred stock investment (market price of $90 less the carrying amount after entry \[a\] of $20, equals $70 unrealized gain). - ![](https://asc.understandingaccounting.org/asc-img/GUID-B9A7F2AC-853D-4E30-84CF-A74A4D50E9E3-low.gif) Preferred stock investment $70 Unrealized gain—other comprehensive income $70 ##### [323-10-55-35](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-35) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:b4a0abc722554715401b7b3ba435bb942c89991e441e093544cee0ef9267dfb0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In 20X1, the total profit-and-loss charge is $85 ($80 for the equity method loss and $5 for the loan). Other comprehensive income is credited $70 for the preferred stock investment. The carrying amount of the total combined investment in Investee is reduced to $185 ($0 for the common stock investment, $95 for the loan, and $90 for the preferred stock investment), and the balance in accumulated other comprehensive income is a credit of $70. The adjusted basis of the total combined investment in Investee is reduced to $115 ($0 for the common stock investment, $95 for the loan, and $20 for the preferred stock investment). ##### [323-10-55-36](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-36) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:ab715a76b72ce63d4426412145864b23ebd713535b8fe0e12a6f7a8b1fdca7fb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investor would make both of the following entries in 20X2: 1. a In accordance with this Subtopic, record the equity method loss (40% × $400 = $160) to the adjusted basis of the preferred stock of $20 and, because the adjusted basis of the preferred stock will then be reduced to zero, record the remaining equity method loss to the adjusted basis of the loan (the next level of capital). The total equity method loss recorded would be limited, however, to the adjusted basis of the total combined investment in Investee of $115; therefore, $45 of equity method losses are unreported. - ![](https://asc.understandingaccounting.org/asc-img/GUID-C1E0B042-EF2C-41FA-889C-A62D27D05115-low.gif) Equity method loss $115 Preferred stock investment $20 Loan 95 2. b In accordance with Subtopic 320-10, record the changes in fair value for the available-for-sale preferred stock investment (market price of $90 less the carrying amount after entry \[a\] of $70, equals $20 unrealized gain). - ![](https://asc.understandingaccounting.org/asc-img/GUID-D72A2D8E-F6C9-47D7-B3B3-BEAB74051384-low.gif) Preferred stock investment $20 Unrealized gain—other comprehensive income $20 ##### [323-10-55-37](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-37) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:a834e6435c168ccfd06fd1ad8c2f7e12ac15f5b6b7945a0f49eab2fe2c9c503f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In 20X2, the total profit-and-loss charge is $115 (equity method loss). Other comprehensive income is credited $20 for the preferred stock investment. The carrying amount of the total combined investment in Investee is reduced to $90 ($0 for the common stock investment, $0 for the loan, and $90 for the preferred stock investment), and the balance in accumulated other comprehensive income is a credit of $90. The adjusted basis of the total combined investment in Investee is reduced to $0 ($0 for the common stock investment, $0 for the loan, and $0 for the preferred stock investment). ##### [323-10-55-38](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-38) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:fcfba2b7c92062389ed25795f55823106e47f4af5fa5b9d5f037c67d8ffb3769 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In 20X3, there is no equity method income or loss (40% × $0 = $0). Investor would make both of the following entries in 20X3: 1. a Because the adjusted basis of the loan was reduced to zero in 20X2 as a result of applying equity method losses to the loan, no entry is needed to reflect the Subtopic 326-20 reduction in carrying amount from $95 to $60. 2. b In accordance with Subtopic 320-10, record the changes in fair value for the available-for-sale preferred stock investment (fair value of $50 less the carrying amount of $90 equals $40 unrealized loss). - ![](https://asc.understandingaccounting.org/asc-img/GUID-D66CE8FC-C8AD-48B9-A1AC-3422C4726E3B-low.gif) Unrealized loss—other comprehensive income $40 Preferred stock investment $40 ##### [323-10-55-39](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-39) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:c313cf6f11e378ae216c544836fecdc801a15871c3425bda2534e6fe482bfd20 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In 20X3, other comprehensive income is debited $40 for the preferred stock investment. The carrying amount of the total combined investment in Investee is reduced to $50 ($0 for the common stock investment, $0 for the loan, and $50 for the preferred stock investment), and the balance in accumulated other comprehensive income is a credit of $50. The adjusted basis of the total combined investment in Investee remains $0. ##### [323-10-55-40](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-40) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:7f7956720897cb279632ac68eb9ea662e872551c31213175cf4cc5446dea0a77 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investor would make both of the following entries in 20X4: 1. a In accordance with this Subtopic, record the equity method income (40% × $400 = $160). However, in accordance with this Subtopic, Investor resumes applying the equity method only after its share of that income equals the unreported equity method losses of $45. Therefore, the equity method income to be reported for the period is $115 ($160-$45). The adjusted bases of the other investments are restored in the reverse order of the application of the equity method losses (loan first, then preferred stock). - ![](https://asc.understandingaccounting.org/asc-img/GUID-9F3C3D8E-242A-4298-A1E0-CB7179B642FD-low.gif) Loan $95 Preferred stock investment 20 Equity method income $115 2. b In accordance with Subtopic 320-10, record the changes in fair value for the available-for-sale preferred stock investment (market price of $90 less the carrying amount of $70 equals $20 unrealized gain). - ![](https://asc.understandingaccounting.org/asc-img/GUID-981E220D-47CA-4F0E-8014-8387CC0900F0-low.gif) Preferred stock investment $20 Unrealized gain—other comprehensive income $20 ##### [323-10-55-41](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-41) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:2515b803a165345396b93cac7c0f7ea33dd8c78e5500f27871709a5931a4df57 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In 20X4, the total profit-and-loss credit is $115 (the equity method income after Investor's share of unreported equity method losses of $45 in 20X2). Other comprehensive income is credited $20 for the preferred stock investment. The carrying amount of the total combined investment in Investee is increased to $185 ($0 for the common stock investment, $95 for the loan, and $90 for the preferred stock investment), and the balance in accumulated other comprehensive income is a credit of $70. The adjusted basis of the total combined investment in Investee is increased to $115 ($0 for the common stock investment, $95 for the loan, and $20 for the preferred stock investment). ##### [323-10-55-42](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-42) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:2fa5d30dbc204267fe66248ed81cb7213b6ee54b616eb8f9ea497faa36555fc7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In 20X5, there is no equity method income or loss (40% × $0 = $0). Investor would make both of the following entries in 20X5: 1. a In accordance with Subtopic 326-20, record an allowance for credit loss for the loan. - ![](https://asc.understandingaccounting.org/asc-img/GUID-06AD473A-1890-4142-AC93-49FAA87820D0-low.gif) credit loss expense $50 allowance for credit losses $50 2. b In accordance with Subtopic 320-10, record the changes in fair value for the available-for-sale preferred stock investment (market price of $55 less the carrying amount of $90 equals $35 unrealized loss). - ![](https://asc.understandingaccounting.org/asc-img/GUID-5E5842DB-956E-48F3-9C01-91F0F1268C39-low.gif) Unrealized loss—other comprehensive income $35 Preferred stock investment $35 ##### [323-10-55-43](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-43) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:51b4f2f47c9f75e80bca4dcffdbffbf45d0a66f0a0aade811a263b03f81f8a6f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In 20X5, the total profit-and-loss charge is $50 (from the loan). Other comprehensive income is debited $35 for the preferred stock investment. The carrying amount for the total combined investment in Investee is reduced to $100 ($0 for the common stock investment, $45 for the loan, and $55 for the preferred stock investment), and the balance in accumulated other comprehensive income is a credit of $35. The adjusted basis of the total combined investment in Investee is reduced to $65 ($0 for the common stock investment, $45 for the loan, and $20 for the preferred stock investment). ##### [323-10-55-44](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-44) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:5e61fc08ef595b313f556f752217a02efce47d0a713b174583da5fc4dd35a11a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In 20X6, there is no equity method income or loss (40% × $0 = $0). Investor would make both of the following entries in 20X6: 1. a In accordance with Subtopic 326-20, adjust the allowance for credit losses on the loan. - ![](https://asc.understandingaccounting.org/asc-img/GUID-C9ACB6FF-B7AC-4D4A-8754-C41515BFB357-low.gif) allowance for credit losses $50 credit loss expense $50 2. b In accordance with Subtopic 320-10, record the changes in fair value for the available-for-sale preferred stock investment (market price of $90 less the carrying amount of $55 equals $35 unrealized gain). - ![](https://asc.understandingaccounting.org/asc-img/GUID-46461BC6-2F91-40D0-9748-525261470AEB-low.gif) Preferred stock investment $35 Unrealized gain—other comprehensive income $35 ##### [323-10-55-45](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-45) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:1fa71bc43d8db301d10ed4476e4bfcede9380e0e6ba0c891333561eb8b77750f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In 20X6, the total profit-and-loss credit is $50 (from the loan). Other comprehensive income is credited $35 for the preferred stock investment. The carrying amount of the total combined investment in Investee is increased to $185 ($0 for the common stock investment, $95 for the loan, and $90 for the preferred stock investment), and the balance in accumulated other comprehensive income is a credit of $70. The adjusted basis of the total combined investment in Investee is increased to $115 ($0 for the common stock investment, $95 for the loan, and $20 for the preferred stock investment). ##### [323-10-55-46](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-46) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:356b0d8433deb67436bac8cdd19ee2a3b2bad598bfd518db5877203ce73da90e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investor would make all of the following entries in 20X7: 1. a Record the sale of the preferred stock. - ![](https://asc.understandingaccounting.org/asc-img/GUID-620E6AA9-2228-44F1-A87B-04BDA1C49E5A-low.gif) Cash $90 Other comprehensive income 70 Preferred stock investment $90 Gain on sale of security 70 2. b In accordance with this Subtopic, record the equity method income (40% × $1,000 = $400). Although Investor has recorded losses for all prior Investee losses, $80 of such recorded losses (representing the difference between the cost basis of the preferred stock investment of $100 and its adjusted basis of $20) have effectively been reversed in entry (a) by recording a $70 gain on the sale of the preferred stock when an actual loss of $10 (representing the difference between the cost basis of the preferred stock investment of $100 and the proceeds of $90) was incurred. Accordingly, only $320 of equity method income should be recorded ($400-$80). - ![](https://asc.understandingaccounting.org/asc-img/GUID-633E1C14-4095-4A41-AC97-885F4AA15DEF-low.gif) Investment in investee (common) $320 Equity method income $320 3. c In accordance with Subtopic 326-20, adjust the allowance for credit losses on the loan. - ![](https://asc.understandingaccounting.org/asc-img/GUID-8E434C14-D06F-4FA9-9043-70E63E26EBAD-low.gif) Allowance for credit losses $5 Credit loss expense $5 ##### [323-10-55-47](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-47) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:e63bf2b345bf63c6a4ec611617fe41b8fdaa885cebea3bc0ca93441303df4902 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In 20X7, the total profit-and-loss credit is $395 ($70 gain from the sale of the preferred stock, $320 for the equity method income, and $5 from the loan). The carrying value of the total combined investment in Investee is increased to $420 ($320 for the common stock investment and $100 for the loan), and the balance in accumulated other comprehensive income is $0. The adjusted basis of the total combined investment in Investee is increased to $420 ($320 for the common stock investment, $100 for the loan, and $0 for the preferred stock investment). ##### [323-10-55-48](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-48) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:b3335f035cea662c8fa8a44953236e3707ac3dbe4e9d5c2856f7d23861e23e82 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate possible approaches to recognizing equity method losses in accordance with paragraph [323-10-35-28](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-28): 1. a Ownership level of particular investment (Case A) 2. b Change in investor claim on investee book value (Case B). ##### [323-10-55-49](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-49) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:5be838552bb89b7d62c2385defc098aa3a9adacacb54c912d94f857690f16a63 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Cases A and B share all of the following assumptions: 1. a Investee was formed on January 1, 20X0. 2. b Five investors each made investments in and loans to Investee on that date and there have not been any changes in those investment levels (that is, no new money, reacquisition of interests by Investee, principal payments by Investee, or dividends) during the period from January 1, 20X0, through December 31, 20X3. 3. c Investor A owns 40 percent of the outstanding common stock of Investee; the common stock investment has been reduced to zero at the beginning of 20X1 because of previous losses. 4. d Investor A also has invested $100 in preferred stock of Investee (50 percent of the outstanding preferred stock of Investee) and has extended $100 in loans to Investee (which represents 60 percent of all loans extended to Investee). 5. e Investor A is not obligated to provide any additional funding to Investee. As of the beginning of 20X1, the adjusted basis of Investor's total combined investment in Investee is $200, as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-628B212C-2D0F-40F9-AB5E-7F151A9D31B2-low.gif) Common stock $- Preferred stock $100 Loan $100 6. f Investee operating income (loss) from 20X1 through 20X3 is as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-CA589954-7FCE-439A-BB8B-EF394D6BF139-low.gif) 20X1 $(160) 20X2 $(200) 20X3 $500 7. g Investee's balance sheet is as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-7802F4CB-3E08-4A8A-A353-81F9EBAE4660-low.gif) 1/1/X1 12/31/X1 12/31/X2 12/31/X3 Assets $367 $207 $7 $507 Loan $167 $167 $167 $167 Preferred stock 200 200 200 200 Common stock 300 300 300 300 Accumulated deficit (300) (460) (660) (160) $367 $207 $7 $507 ##### [323-10-55-50](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-50) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:3647cfeeb123bd70e49a95f83d89ddf4a418f9dc312e2fa01aae745f98427bc3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under this approach, Investor A would recognize equity method losses based on the ownership level of the particular investee security, loan, or advance held by the investor to which equity method losses are being applied. ##### [323-10-55-51](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-51) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:f40d8e91cca2b3e7f66f086a7c2972a274edf54048c41cb4427431f56bded888 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In 20X1, in accordance with this Subtopic, Investor A would record the equity method loss to the adjusted basis of the preferred stock (the next most senior level of capital) after the common stock investment becomes zero (50% × $160 = $80). Investor A would record the following journal entry. - ![](https://asc.understandingaccounting.org/asc-img/GUID-93B8870B-10F9-4D6B-82DC-C1A43C6392FE-low.gif) Equity method loss $80 Preferred stock investment $80 ##### [323-10-55-52](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-52) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:4f2b72f81a42c5ba16a6b47947d9cd2e8449000cecdf20c32a3d7be104353fae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In 20X2, in accordance with this Subtopic, Investor A would record the equity method loss to the extent of the adjusted basis of the preferred stock of $20 (50% × $40 = $20) and, because the adjusted basis of the preferred stock will then be reduced to zero, record the remaining equity method loss to the adjusted basis of the loan (the next most senior level of capital) (60% × $160 \[that is, $200-$40 applied to the preferred stock\] = $96). Investor A would record the following journal entry. - ![](https://asc.understandingaccounting.org/asc-img/GUID-B7264A42-B1EF-4F56-A8C3-BB3C3E4F77DE-low.gif) Equity method loss $116 Preferred stock investment $20 Loan 96 ##### [323-10-55-53](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-53) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:0f3b97e76559bc9b283c9554044370a1db174ef157a83cec501c154c1afd255a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In 20X3, in accordance with this Subtopic, Investor A would record the equity method income first to the loan until its adjusted basis is restored (60% × $160 = $96), then to the preferred stock until its adjusted basis is restored (50% × $200 = $100), and finally to the common stock (40% × $140 = $56). Investor A would record the following journal entry. - ![](https://asc.understandingaccounting.org/asc-img/GUID-25D0500F-F066-4B0C-BC54-48C12AA55CBF-low.gif) Loan $96 Preferred stock 100 Investment in investee 56 Equity method income $252 ##### [323-10-55-54](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-54) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:0d3e2afc0f840e895b02307b60ac1d196eca2c9614a6bed000ed53a429ca9b72 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under this approach, Investor A would recognize equity method losses based on the change in the investor's claim on the investee's book value. ##### [323-10-55-55](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-55) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:c62455dcc1b78860cfb76cc5ee06759ce989d30c711a73ae06bac01bf78f0605 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. With respect to 20X1, if Investee hypothetically liquidated its assets and liabilities at book value at December 31, 20X1, it would have $207 available to distribute. Investor A would receive $120 (Investor A's 60% share of a priority claim from the loan \[$100\] and a priority distribution of its preferred stock investment of $20 \[which is 50% of the $40 remaining to distribute after the creditors are paid\]). Investor A's claim on Investee's book value at January 1, 20X1, was $200 (60% × $167 = $100 and 50% × $200 = $100). Therefore, during 20X1, Investor A's claim on Investee's book value decreased by $80 and that is the amount Investor A would recognize in 20X1 as its share of Investee's losses. Investor A would record the following journal entry. - ![](https://asc.understandingaccounting.org/asc-img/GUID-E0CFBAF2-91E3-49D5-9D5F-1FFE78AA5651-low.gif) Equity method loss $80 Preferred stock investment $80 ##### [323-10-55-56](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-56) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:b2d4fb899c56cc502ecc165d462613b1ff89bd5c2e061feaee900d97295c5c7d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. With respect to 20X2, if Investee hypothetically liquidated its assets and liabilities at book value at December 31, 20X2, it would have $7 available to distribute. Investor A would receive $4 (Investor A's 60% share of a priority claim from the loan). Investor A's claim on Investee's book value at December 31, 20X1, was $120 (see the preceding paragraph). Therefore, during 20X2, Investor A's claim on Investee's book value decreased by $116 and that is the amount Investor A would recognize in 20X2 as its share of Investee's losses. Investor A would record the following journal entry. - ![](https://asc.understandingaccounting.org/asc-img/GUID-752AE4C6-68BD-4861-80B7-E04138F893AA-low.gif) Equity method loss $116 Preferred stock investment $20 Loan 96 ##### [323-10-55-57](https://asc.understandingaccounting.org/asc/323/10/#323-10-55-57) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:17.084Z to 2026-09-09T23:40:17.084Z Record version: sha256:0d59a14314057de2d15ecc93a2012789aa9054b777d939444db36a3603be8db0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. With respect to 20X3, if Investee hypothetically liquidated its assets and liabilities at book value at December 31, 20X3, it would have $507 available to distribute. Investor A would receive $256 (Investor A's 60% share of a priority claim from the loan \[$100\], Investor A's 50% share of a priority distribution from its preferred stock investment \[$100\], and 40% of the remaining cash available to distribute \[$140 × 40% = $56\]). Investor A's claim on Investee's book value at December 31, 20X2, was $4 (see above). Therefore, during 20X3, Investor A's claim on Investee's book value increased by $252 and that is the amount Investor A would recognize in 20X3 as its share of Investee's earnings. Investor A would record the following journal entry. - ![](https://asc.understandingaccounting.org/asc-img/GUID-A2E61C18-0CEE-4579-BCF2-35BCF37CCBC8-low.gif) Loan $96 Preferred stock 100 Investment in investee 56 Equity method income $252 Source downloaded (UTC): 2026-09-09T23:40:20.472Z to 2026-09-09T23:40:20.472Z Record version: sha256:ba081a829536bb9cbf5b52595a3d2ce74b605770401462a23d40535d9358aa54 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-60: 60 Relationships [Read section](https://asc.understandingaccounting.org/asc/323/10/#60-relationships) SEC content: no #### Earnings Per Share ##### [323-10-60-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-60-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:20.472Z to 2026-09-09T23:40:20.472Z Record version: sha256:b097753394c0aed87cce9b4068359f207ef27f4a1f448349711824b6be2ba3cd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For guidance on the computation of consolidated earnings per share (EPS) if equity method investees or corporate joint ventures have issued options, warrants, and convertible securities, see paragraph [260-10-55-20](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-20). #### Not-For-Profit Entities ##### [323-10-60-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-60-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:20.472Z to 2026-09-09T23:40:20.472Z Record version: sha256:8db9cd48f1c1411abf661a0e6da4e05e31a3e3e17414bfc71e3288e6273cda62 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For the use of the equity method if a not-for-profit entity (NFP) has [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.") investments that are 50 percent or less of the voting stock of for-profit entities, see paragraph [958-810-15-4](https://asc.understandingaccounting.org/asc/810/958/#810-958-15-4). ##### [323-10-60-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-60-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:20.472Z to 2026-09-09T23:40:20.472Z Record version: sha256:a5b7904aff1b23e9c599d7b14988391fe107f18411fc26f6392d29837014d3bf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For NFPs that choose to report investment portfolios at fair value instead of applying the equity method, see paragraph [958-810-15-4](https://asc.understandingaccounting.org/asc/810/958/#810-958-15-4). #### Real Estate—General ##### [323-10-60-4](https://asc.understandingaccounting.org/asc/323/10/#323-10-60-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:20.472Z to 2026-09-09T23:40:20.472Z Record version: sha256:ed560f9cf2fb35bd85ce4eddbb90ea825165cd055ff49c93a88086df4724a7e0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For the use of the equity method by a real estate investment trust with an investment in a service corporation, see paragraph [974-323-25-1](https://asc.understandingaccounting.org/asc/323/974/#323-974-25-1). Source downloaded (UTC): 2026-09-09T23:40:22.568Z to 2026-09-09T23:40:22.568Z Record version: sha256:def541f62569337efa3ebcc3a28475c5eef4a4769dc55446864a6635b27aac68 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-65: 65 Transition and Open Effective Date Information [Read section](https://asc.understandingaccounting.org/asc/323/10/#65-transition-and-open-effective-date-information) SEC content: no ##### [323-10-65-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-65-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:22.568Z to 2026-09-09T23:40:22.568Z Record version: sha256:39ceabe07f4c89d09c5a05c6262f0860f722806da1aafce3ed1da7f20a8bf77b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph superseded on 07/01/2010 after the end of the transition period stated in EITF Issue No. 08-6, "Equity Method Investment Accounting Considerations." ##### [323-10-65-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-65-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:22.568Z to 2026-09-09T23:40:22.568Z Record version: sha256:a75460321e3df9aac96eabb8b7b37baec16376d334b8bf88447bb378951496e3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph superseded on 06/20/2018 after the end of the transition period stated in Accounting Standards Update No. 2016-07, _Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting_. Source downloaded (UTC): 2026-09-09T23:40:27.423Z to 2026-09-09T23:40:27.423Z Record version: sha256:d87468e9c86c07f8c794ea347094196042e532808c0e400059e0ed569eddc671 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-S00: SEC 00 Status [Read section](https://asc.understandingaccounting.org/asc/323/10/#sec-00-status) SEC content: yes ##### [323-10-S00-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-S00-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:27.423Z to 2026-09-09T23:40:27.423Z Record version: sha256:b395bdb88baa36eea04f28fffa6d2d688ddde0d52943961858a87ccb1bafa7a4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes that have been made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
323-10-S55-1SupersededAccounting Standards Update No. 2010-0401/15/2010
323-10-S99-1AmendedAccounting Standards Update No. 2012-0308/27/2012
323-10-S99-2AmendedAccounting Standards Update No. 2012-0308/27/2012
323-10-S99-3SupersededAccounting Standards Update No. 2010-0401/15/2010
323-10-S99-4AmendedAccounting Standards Update No. 2009-0909/17/2009
Source downloaded (UTC): 2026-09-09T23:40:31.341Z to 2026-09-09T23:40:31.341Z Record version: sha256:58055000defa1cde8987d05ebb1dd49178a0c7a3dc3ae5fe0581c42dbbed5b8c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-S45: SEC 45 Other Presentation Matters [Read section](https://asc.understandingaccounting.org/asc/323/10/#sec-45-other-presentation-matters) SEC content: yes #### Stock-Based Compensation Granted to Employees of an Equity Method Investee ##### [323-10-S45-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-S45-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:31.341Z to 2026-09-09T23:40:31.341Z Record version: sha256:4071cd3d67268bc076effdc9b51cfbf29203105f459b47dc7ad3ed7dd836c212 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraph [323-10-S99-4](https://asc.understandingaccounting.org/asc/323/10/#323-10-S99-4), SEC Observer Comment: Accounting by an Investor for Stock-based compensation granted to employees of an equity method investee, for staff views on classification of income or expense resulting from the application of guidance in paragraph [323-10-25-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-3). Source downloaded (UTC): 2026-09-09T23:40:33.423Z to 2026-09-09T23:40:33.423Z Record version: sha256:5d37440f8ff9da369f4d16d9c8ca8533d99d3a8d3e228e434cb22395d42afe42 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-S50: SEC 50 Disclosure [Read section](https://asc.understandingaccounting.org/asc/323/10/#sec-50-disclosure) SEC content: yes #### Summarized Financial Information of Subsidiaries Not Consolidated and 50 Percent or Less Owned Persons ##### [323-10-S50-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-S50-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:33.423Z to 2026-09-09T23:40:33.423Z Record version: sha256:bf481f748c7eb33a730b4a5aa90333f56137cfb99402e67fd432ad5a743ce6e9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraph [235-10-S99-1](https://asc.understandingaccounting.org/asc/235/10/#235-10-S99-1), Regulation S-X Rule 4-08(g), for requirements to provide summarized financial information of subsidiaries not consolidated and 50 percent or less owned persons. ##### [323-10-S50-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-S50-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:33.423Z to 2026-09-09T23:40:33.423Z Record version: sha256:26f1bd2595d9207bdcbe0261ad031e835c41245d0ee9375559532f457344935e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraph [270-10-S99-1](https://asc.understandingaccounting.org/asc/270/10/#270-10-S99-1), Regulation S-X Rule 10-01(b)(1), for requirements to provide summarized financial information in interim financial statements for subsidiaries not consolidated or 50 percent or less owned persons. Source downloaded (UTC): 2026-09-09T23:40:36.396Z to 2026-09-09T23:40:36.396Z Record version: sha256:cc118132d496b42a0ea0189fa77e4fdbd9446ff3d2659d86631c9965584b12ac Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-S55: SEC 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/323/10/#sec-55-implementation-guidance-and-illustrations) SEC content: yes ##### [323-10-S55-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-S55-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:36.396Z to 2026-09-09T23:40:36.396Z Record version: sha256:41d826ed54d0ad7db271451dc0bf503feb65229c6ac3857fc26722d9ef32994a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2010-04](https://asc.understandingaccounting.org/updates/asu-2010-04/). #### Undistributed Earnings of 50 Percent or Less Owned Persons ##### [323-10-S55-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-S55-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:36.396Z to 2026-09-09T23:40:36.396Z Record version: sha256:cc73264f930b14b744becd27d5b4f36ececc86781ff4dc59ed225b6f4e0a5908 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraph [323-10-S99-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-S99-1), SAB Topic 6.K.3, for SEC Staff views on determining whether footnote disclosure is required about undistributed earnings of 50 percent or less owned persons. #### Summarized Financial Statement Requirements for Unconsolidated Subsidiaries and 50 Percent or Less Owned Persons ##### [323-10-S55-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-S55-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:36.396Z to 2026-09-09T23:40:36.396Z Record version: sha256:1f98ea68424424e272b482de9a22ec4972905f3e5e6300b8be401eefd3fd729c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraph [323-10-S99-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-S99-2), SAB Topic 6.K.4(b), for SEC Staff views on when providing summarized disclosure required by Regulation S-X Rule 4-08(g) is appropriate. Source downloaded (UTC): 2026-09-09T23:40:38.151Z to 2026-09-09T23:40:38.151Z Record version: sha256:e80b6184128682a10dd320306ff8892b2572f1477e43d658bfe56defef924777 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-10-S99: SEC 99 SEC Materials [Read section](https://asc.understandingaccounting.org/asc/323/10/#sec-99-sec-materials) SEC content: yes #### SEC Staff Guidance ##### [323-10-S99-1](https://asc.understandingaccounting.org/asc/323/10/#323-10-S99-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:38.151Z to 2026-09-09T23:40:38.151Z Record version: sha256:9985df7cdf74e2bbd14ffc563bdba7a40684ff0ff4945d9ed8163891880a619f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following is the text from SAB Topic 6.K.3, Undistributed Earnings of 50% or Less Owned Persons. - Facts: Rule 4-08(e)(2) of Regulation SX requires footnote disclosures of the amount of consolidated retained earnings which represents undistributed earnings of 50% or less owned persons (investee) accounted for by the equity method. The test adopted in ASR 302 to trigger disclosures about the registrant's restricted net assets (Rule 4-08(e)(3)) includes the parent's equity in the undistributed earnings of investees. - Question: Is the amount required for footnote disclosure the same as the amount included in the test to determine disclosures about restrictions? - Interpretive Response: Yes. The amount used in the test in Rule 4-08(e)(3) should be the same as the amount required to be disclosed by Rule 4-08(e)(2). This is the portion of the registrant's consolidated retained earnings which represents the undistributed earnings of an investee since the date(s) of acquisition. It is computed by determining the registrant's cumulative equity in the investee's earnings, adjusted by any dividends received, related goodwill write-downs, and any related income taxes provided. ##### [323-10-S99-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-S99-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:38.151Z to 2026-09-09T23:40:38.151Z Record version: sha256:04ab93f6fab935c7a9b30aed853362639d68e5fb948ae6cbf91fc675efa94d06 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following is the text of SAB Topic 6.K.4.b, Application of Significant Subsidiary Test to Investees and Unconsolidated Subsidiaries. - b. Summarized financial statement requirements. - Facts: Rule 4-08(g) of Regulation S-X requires summarized financial information about unconsolidated subsidiaries and 50% or less owned persons (investee) to be included in the footnotes to the financial statements if, in the aggregate, they meet the tests of a significant subsidiary set forth in Rule 1-02(w). - Question 1: Must a registrant which includes separate financial statements or condensed financial statements for unconsolidated subsidiaries or investees in its annual report to shareholders also include in such report the summarized financial information for these entities pursuant to Rule 4-08(g)? - Interpretive Response: No. The purpose of the summarized information is to provide minimum standards of disclosure when the impact of such entities on the consolidated financial statements is significant. If the registrant furnishes more information in the annual report than is required by these minimum disclosure standards, such as condensed financial information or separate audited financial statements, the summarized data can be excluded. The Commission's rules are not intended to conflict with the provisions of FASB ASC subparagraph [323-10-50-3(c)](https://asc.understandingaccounting.org/asc/323/10/#323-10-50-3) (Investments—Equity Method and Joint Ventures Topic) which provide that either separate financial statements of investees be presented with the financial statements of the reporting entity or that summarized information be included in the reporting entity's financial statement footnotes. - Question 2: Can summarized information be omitted for individual entities as long as the aggregate information for the omitted entity(s) does not exceed 10% under any of the significance tests of Rule 1-02(w)? - Interpretive Response: The 10% measurement level of the significant subsidiary rule was not intended to establish a materiality criteria for omission, and the arbitrary exclusion of summarized information for selected entities up to a 10% level is not appropriate. Rule 4-08(g) requires that the summarized information be included for all unconsolidated subsidiaries and investees. However, the staff recognizes that exclusion of the summarized information for certain entities is appropriate in some circumstances where it is impracticable to accumulate such information and the summarized information to be excluded is de minimis. ##### [323-10-S99-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-S99-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:38.151Z to 2026-09-09T23:40:38.151Z Record version: sha256:f3e12aabecf483127c28c7626b161d65d33eeb8655ff62df81c64aa9d6b46876 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2010-04](https://asc.understandingaccounting.org/updates/asu-2010-04/). ##### [323-10-S99-4](https://asc.understandingaccounting.org/asc/323/10/#323-10-S99-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:38.151Z to 2026-09-09T23:40:38.151Z Record version: sha256:bba13c052777846b5f83c534f3164b0f3ed41970130015e8e1d6657d3e4bdfd5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following is the text of SEC Observer Comment: Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method Investee. - Paragraph [323-10-25-3](https://asc.understandingaccounting.org/asc/323/10/#323-10-25-3) provides guidance on the accounting by an investor for stock-based compensation based on the investor's stock granted to employees of an equity method investee. Investors that are SEC registrants should classify any income or expense resulting from application of this guidance in the same income statement caption as the equity in earnings (or losses) of the investee. Source downloaded (UTC): 2026-09-09T23:40:40.753Z to 2026-09-09T23:41:05.466Z Record version: sha256:ae56c9e226775273598c68b5edfbb656f0cd8c611c665726814a259d61eeef56 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-30: Investments—Equity Method and Joint Ventures — Partnerships, Joint Ventures, and Limited Liability Entities ### Machine-generated study aids ```json { "summary": "ASC 323-30 extends equity method concepts to investments in unincorporated entities—partnerships, unincorporated joint ventures (undivided interests in ventures), and limited liability companies—that are outside the literal scope of Subtopic 323-10 (which addresses common stock of corporations). Investors generally apply the equity method by analogy when they can exercise significant influence over the investee (323-30-25-1), including the intra-entity profit elimination rules of 323-10-35-7. An LLC that maintains a specific ownership account for each investor is treated like a limited partnership interest in deciding between Topic 321 and the equity method (323-30-35-3).", "key_points": [ "This Subtopic applies the criteria for equity method accounting to investments in partnerships, unincorporated joint ventures, and limited liability companies (323-30-15-2), following the scope of Section 323-10-15.", "Investors in unincorporated entities generally account for their investments using the equity method by analogy to Subtopic 323-10 if the investor has the ability to exercise significant influence over the investee (323-30-25-1).", "Elimination of intra-entity profits and the accounting for income taxes under paragraph 323-10-35-7 apply to unincorporated joint ventures (323-30-25-2) and to partnership interests (323-30-35-2).", "Partnership profits and losses accrued by investor-partners are reflected in the investor's financial statements as described in paragraphs 323-10-45-1 through 45-2 (323-30-35-1).", "Income taxes must be provided on profits accrued by investor-partners regardless of the tax basis used in the partnership return, because the tax liabilities relate directly to the partners; Topic 740 accounting applies (323-30-35-2).", "An LLC that maintains a specific ownership account for each investor (similar to a partnership capital account) is viewed like a limited partnership investment when deciding whether a noncontrolling investment falls under Topic 321 or the equity method (323-30-35-3).", "The Subtopic does not address investments in LLCs required to be accounted for as debt securities under paragraph 860-20-35-2 (323-30-15-4); discontinuance of the equity method for a limited partnership is addressed in 323-10-35-39." ], "categories": [ "Recognition", "Subsequent measurement", "Income taxes", "Consolidation" ], "audience_level": "intermediate", "student_note": "Exam questions often hinge on the fact that ASC 323-10 literally covers only common stock, so partnership and LLC interests get equity method treatment \"by analogy\" under 323-30—and the significant-influence threshold for limited partnerships is much lower (roughly more than 3–5%) than the 20% corporate presumption. A common misunderstanding is assuming the partnership's pass-through tax status eliminates deferred tax accounting; 323-30-35-2 requires taxes on accrued profits regardless of the partnership's tax basis.", "related_topics": [ "323-10", "970-323", "321", "808", "740", "310-10" ], "key_concepts": [ "equity method by analogy", "significant influence", "partnership interests", "unincorporated joint ventures", "limited liability company", "specific ownership account", "intra-entity profit elimination", "undivided interests" ] } ``` Source downloaded (UTC): 2026-09-09T23:40:40.753Z to 2026-09-09T23:40:40.753Z Record version: sha256:8f6220039fe45a5d6a836aa06f93bca7c759bc77840ace7a0d3fb310620f650b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-30-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/323/30/#00-status) SEC content: no ##### [323-30-00-1](https://asc.understandingaccounting.org/asc/323/30/#323-30-00-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:40.753Z to 2026-09-09T23:40:40.753Z Record version: sha256:f5a07db22ca44db1f8edcc105bfcb5160775ee642773767072fe5ae9a8dd95dc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
323-30-35-3AmendedAccounting Standards Update No. 2016-0101/05/2016
323-30-35-4AmendedAccounting Standards Update No. 2016-0101/05/2016
323-30-60-2SupersededAccounting Standards Update No. 2016-0101/05/2016
Source downloaded (UTC): 2026-09-09T23:40:43.763Z to 2026-09-09T23:40:43.763Z Record version: sha256:9cb7758afbdb1533554cf62ba4b7c917e9d57b83f7cab19978cfe69dd0a42190 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-30-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/323/30/#05-overview-and-background) SEC content: no ##### [323-30-05-1](https://asc.understandingaccounting.org/asc/323/30/#323-30-05-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:43.763Z to 2026-09-09T23:40:43.763Z Record version: sha256:87a14dbd1786d5ca46bf75604d3c63fa0de24aecde061f0c86e1504f60269257 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides guidance on applying the criteria for equity method accounting to investments in partnerships, unincorporated joint ventures, and limited liability companies. ##### [323-30-05-2](https://asc.understandingaccounting.org/asc/323/30/#323-30-05-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:43.763Z to 2026-09-09T23:40:43.763Z Record version: sha256:026e3f29eadb7d9310ca829b065367d229b4b34efc8fd1f1d142e4ad3222c077 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Section 323-10-05 for a discussion of the interaction of guidance in the multiple Subtopics within the Investments—Equity Method and Joint Ventures Topic. Source downloaded (UTC): 2026-09-09T23:40:46.207Z to 2026-09-09T23:40:46.207Z Record version: sha256:926a5537cd6a6fa29eb599c7945bcc28ce5852e01a48a1f974eefa978e7c833d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-30-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/323/30/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [323-30-15-1](https://asc.understandingaccounting.org/asc/323/30/#323-30-15-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:46.207Z to 2026-09-09T23:40:46.207Z Record version: sha256:ff0ca42d7876856a328716c57adb7fd35c8b081c12b8043b80fca721732643f2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 323-10-15, with specific transaction qualifications noted below. #### Transactions ##### [323-30-15-2](https://asc.understandingaccounting.org/asc/323/30/#323-30-15-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:46.207Z to 2026-09-09T23:40:46.207Z Record version: sha256:bf8d0bbd8f22d1ce10d80daa9a25f76a47e695c76333373ecca41b55edb442e2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides guidance on applying the criteria for equity method accounting to investments in all of the following entities: 1. a Partnerships 2. b Unincorporated joint ventures 3. c Limited liability companies. ##### [323-30-15-3](https://asc.understandingaccounting.org/asc/323/30/#323-30-15-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:46.207Z to 2026-09-09T23:40:46.207Z Record version: sha256:ded2c8e0023bb63668ded1aaad7f320b92685f3bdad15d5ac34ed22259b579f2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although Subtopic 323-10 applies only to investments in [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.") of corporations and does not cover investments in partnerships and unincorporated joint ventures (also called undivided interests in ventures), many of the provisions of that Subtopic would be appropriate in accounting for investments in these unincorporated entities as discussed within this Subtopic. ##### [323-30-15-4](https://asc.understandingaccounting.org/asc/323/30/#323-30-15-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:46.207Z to 2026-09-09T23:40:46.207Z Record version: sha256:7c39dc36af84c5419b42bf21f5950d30f14163a086fe44ef4cba7503040a0c97 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic does not provide guidance for investments in limited liability companies that are required to be accounted for as debt securities pursuant to paragraph [860-20-35-2](https://asc.understandingaccounting.org/asc/860/20/#860-20-35-2). Source downloaded (UTC): 2026-09-09T23:40:50.508Z to 2026-09-09T23:40:50.508Z Record version: sha256:cd707a4874f982d858c82e8a52d428d355cd80263c877b1e615597d94eb4b615 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-30-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/323/30/#25-recognition) SEC content: no ##### [323-30-25-1](https://asc.understandingaccounting.org/asc/323/30/#323-30-25-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:50.508Z to 2026-09-09T23:40:50.508Z Record version: sha256:89a474ccf6c6e39fed9728cd7c25926cbefd3ae5ec8faba6df3713da766b9bc5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investors in unincorporated entities such as partnerships and other unincorporated joint ventures generally shall account for their investments using the equity method of accounting by analogy to Subtopic 323-10 if the [investor](https://asc.understandingaccounting.org/glossary/i/#investor "A business entity that holds an investment in voting stock of another entity.") has the ability to exercise [significant influence](https://asc.understandingaccounting.org/glossary/s/#significant-influence "Paragraphs 323-10-15-6323-10-15-7323-10-15-8323-10-15-9323-10-15-10323-10-15-11 define significant influence.") over the [investee](https://asc.understandingaccounting.org/glossary/i/#investee "An entity that issued an equity instrument that is held by an investor."). ##### [323-30-25-2](https://asc.understandingaccounting.org/asc/323/30/#323-30-25-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:50.508Z to 2026-09-09T23:40:50.508Z Record version: sha256:2bb7d7d72f1c69dd1d013754aa0fc9c98c1d6fb07749560a0cc038a4c3365306 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The elimination of intra-entity profits and the accounting for income taxes as provided for in paragraph [323-10-35-7](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-7) shall also apply to unincorporated joint ventures. Source downloaded (UTC): 2026-09-09T23:40:52.559Z to 2026-09-09T23:40:52.559Z Record version: sha256:f903e18cf98e6a943e2dcb9517773fdb1aaa0e5f09beb3b148b74bd7338ed79d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-30-35: 35 Subsequent Measurement [Read section](https://asc.understandingaccounting.org/asc/323/30/#35-subsequent-measurement) SEC content: no #### Partnership Profits and Losses ##### [323-30-35-1](https://asc.understandingaccounting.org/asc/323/30/#323-30-35-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:52.559Z to 2026-09-09T23:40:52.559Z Record version: sha256:5d4299ada0120fe2ee0b644acfcd778427c79ffbfed41769e0c1a50e7f88ee87 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Partnership profits and losses accrued by investor-partners generally shall be reflected in their financial statements as described in paragraphs [323-10-45-1 through 45-2](https://asc.understandingaccounting.org/asc/323/10/#323-10-45-1) , respectively. ##### [323-30-35-2](https://asc.understandingaccounting.org/asc/323/30/#323-30-35-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:52.559Z to 2026-09-09T23:40:52.559Z Record version: sha256:378a7299ec2a97fb7d967b77205957cb049297051d1fc0c7ee7a6ac18bf8a285 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Likewise, most of the other provisions of Section 323-10-35 would be appropriate in accounting for a partnership interest, such as the elimination of intra-entity profits and losses (see paragraph [323-10-35-7](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-7)). However, income taxes shall be provided on the profits accrued by investor-partners regardless of the tax basis employed in the partnership return. The tax liabilities applicable to partnership interests relate directly to the partners, and the accounting for income taxes generally contemplated by Topic 740 is appropriate. #### Investment in a Limited Liability Company ##### [323-30-35-3](https://asc.understandingaccounting.org/asc/323/30/#323-30-35-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:52.559Z to 2026-09-09T23:40:52.559Z Record version: sha256:e5e645c1c7a67cdc68d5516901f08b85c3c1c5689875341fe6697a081a7903a6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment in a limited liability company that maintains a specific ownership account for each investor—similar to a partnership capital account structure—shall be viewed as similar to an investment in a limited partnership for purposes of determining whether a noncontrolling investment in a limited liability company shall be accounted for in accordance with the guidance in Topic 321 or the equity method. #### Discontinuance of the Equity Method ##### [323-30-35-4](https://asc.understandingaccounting.org/asc/323/30/#323-30-35-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:52.559Z to 2026-09-09T23:40:52.559Z Record version: sha256:0ae7e5c1ad18cc8d9f1745b100f2bd3b1f7916c496784e128010fee4f1528a22 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [323-10-35-39](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-39) provides guidance on discontinuance of the equity method for a limited partnership because the conditions in paragraph [970-323-25-6](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-6) are met. Source downloaded (UTC): 2026-09-09T23:40:55.235Z to 2026-09-09T23:40:55.235Z Record version: sha256:d6f12d89d75a10c814074e03cae0a67a99ab6a6e661c4b81cfc2db42db193a01 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-30-60: 60 Relationships [Read section](https://asc.understandingaccounting.org/asc/323/30/#60-relationships) SEC content: no #### Receivables ##### [323-30-60-1](https://asc.understandingaccounting.org/asc/323/30/#323-30-60-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:55.235Z to 2026-09-09T23:40:55.235Z Record version: sha256:f0b09d57e4cb93595b9a02d3fcfd0cb185a303bb50a68ce35920a3b394b9ed4c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For guidance on accounting for an acquisition, development, and construction arrangement, see the [Acquisition, Development, and Construction Arrangements Subsection](https://asc.understandingaccounting.org/asc/310/10/#25-recognition) of Section 310-10-25. ##### [323-30-60-2](https://asc.understandingaccounting.org/asc/323/30/#323-30-60-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:55.235Z to 2026-09-09T23:40:55.235Z Record version: sha256:935272efce1d09fc25ecebb32a424340baa1a034bead61e03f9c8cbb4c67cfa2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). #### Real Estate—General ##### [323-30-60-3](https://asc.understandingaccounting.org/asc/323/30/#323-30-60-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:55.235Z to 2026-09-09T23:40:55.235Z Record version: sha256:494b5daa71cc78f6a255c4b2e5d0897782d7b53f00758b6329d8f69c162ec2b4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For guidance on an investment in real estate or real estate development projects in a form that otherwise would be within the scope of this Subtopic, see Subtopic 970-323. #### Collaborative Arrangements ##### [323-30-60-4](https://asc.understandingaccounting.org/asc/323/30/#323-30-60-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:55.235Z to 2026-09-09T23:40:55.235Z Record version: sha256:0a7311508d63a4bb8b8c8cb69d63cbbb88e493663273b3d790324bd3821dbcbc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For guidance on collaborative arrangements, see Topic 808. Source downloaded (UTC): 2026-09-09T23:40:58.938Z to 2026-09-09T23:40:58.938Z Record version: sha256:5e8f17d4ba7ebabed6965bdb444b250608f8a72d43fe74f6c0ea9f7f65726f5b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-30-S00: SEC 00 Status [Read section](https://asc.understandingaccounting.org/asc/323/30/#sec-00-status) SEC content: yes ##### [323-30-S00-1](https://asc.understandingaccounting.org/asc/323/30/#323-30-S00-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:40:58.938Z to 2026-09-09T23:40:58.938Z Record version: sha256:c772d6976e4da17946824f074e8995239d7d0aaa7c2063812c93398b28fff102 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
323-30-S99-1AmendedAccounting Standards Update No. 2010-0401/15/2010
Source downloaded (UTC): 2026-09-09T23:41:02.617Z to 2026-09-09T23:41:02.617Z Record version: sha256:d8b85e0b6d5a2edd356444af3b03c5fbe6b8cc2f4e8ac6d00442acbc19def663 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-30-S55: SEC 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/323/30/#sec-55-implementation-guidance-and-illustrations) SEC content: yes #### Accounting for Limited Partnership Investments ##### [323-30-S55-1](https://asc.understandingaccounting.org/asc/323/30/#323-30-S55-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:02.617Z to 2026-09-09T23:41:02.617Z Record version: sha256:50e260cf365416bd31a2abe71f551878064f2fbc136112783dfccbdc93a252d2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraph [323-30-S99-1](https://asc.understandingaccounting.org/asc/323/30/#323-30-S99-1), SEC Staff Announcement: Accounting for Limited Partnership Investments, for SEC Staff views on when a limited partner may have "so minor" an interest that the equity method would not be required. Source downloaded (UTC): 2026-09-09T23:41:05.466Z to 2026-09-09T23:41:05.466Z Record version: sha256:8be8ab8a337c97f2a9ed4da1bc4a15aaefcd1138f64b19876ee77f7246cc6d8f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-30-S99: SEC 99 SEC Materials [Read section](https://asc.understandingaccounting.org/asc/323/30/#sec-99-sec-materials) SEC content: yes #### SEC Staff Guidance ##### [323-30-S99-1](https://asc.understandingaccounting.org/asc/323/30/#323-30-S99-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:05.466Z to 2026-09-09T23:41:05.466Z Record version: sha256:2108c09e599587101d9a4ed9db85f41c5b1247f7b71c76b34601832c387e9d42 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following is the text of SEC Staff Announcement: Accounting for Limited Partnership Investments. - The SEC staff's position on the application of the equity method to investments in limited partnerships is that investments in all limited partnerships should be accounted for pursuant to paragraph [970-323-25-6](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-6). That guidance requires the use of the equity method unless the investor's interest "is so minor that the limited partner may have virtually no influence over partnership operating and financial policies." The SEC staff understands that practice generally has viewed investments of more than 3 to 5 percent to be more than minor. Source downloaded (UTC): 2026-09-09T23:41:07.480Z to 2026-09-09T23:41:51.330Z Record version: sha256:2ca5724f2ee694ff44f84c3f76114e5edb53270a6370f1add09e86e14f6e9337 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-740: Investments—Equity Method and Joint Ventures — Income Taxes—Proportional Amortization Method ### Machine-generated study aids ```json { "summary": "ASC 323-740 provides standalone guidance on the proportional amortization method for equity investments in flow-through limited liability entities made primarily to receive income tax credits and other income tax benefits (e.g., LIHTC and other tax credit programs). If the conditions in 323-740-25-1 are met and the method is elected on a tax-credit-program-by-tax-credit-program basis (323-740-25-4), the investor amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits allocated to it, and reports that amortization within income tax expense (benefit) (323-740-35-2; 323-740-45-2).", "key_points": [ "Election conditions (323-740-25-1): it is probable the allocable income tax credits will be available; the investor cannot exercise significant influence over the underlying project's operating and financial policies; substantially all projected benefits (on a discounted basis) are from income tax credits and other income tax benefits; the projected yield based solely on tax credit and tax benefit cash flows is positive; and the investor is a limited liability investor for both legal and tax purposes.", "The proportional amortization method is an accounting policy election made on a tax-credit-program-by-tax-credit-program basis and applied consistently to all qualifying investments within the elected program, not investment by investment (323-740-25-4).", "Amortization equals the initial investment balance less expected residual value, multiplied by the ratio of current-period allocated income tax credits and other income tax benefits to total estimated credits and benefits over the life of the investment (323-740-35-2), with a practical expedient to use only income tax credits if substantially similar (323-740-35-4).", "Income tax credits are recognized in the period they are allocated to the investor for tax purposes; immediate recognition of all future credits at initial investment is prohibited (323-740-25-5; 323-740-30-1).", "Amortization is presented as a component of income tax expense (benefit), while non-income-tax-related benefits are included in pretax earnings when realized or realizable and gains or losses on sale go to pretax earnings (323-740-45-2; 323-740-35-5).", "Impairment is tested when events or circumstances indicate it is more likely than not that the carrying amount will not be realized; the loss equals carrying amount less fair value and may not be reversed (323-740-35-6); a liability is recognized for unconditional delayed equity contributions and for contingent contributions when probable (323-740-25-3).", "Disclosures under 323-740-50-1 and 50-1A apply to all investments in an elected tax credit program (even those failing the 25-1 conditions) and cover the nature of investments, credits and benefits recognized, investment balances and line items, amortization in tax expense, non-income-tax-related activity, and significant changes in the investment or the relationship with the project." ], "categories": [ "Income taxes", "Subsequent measurement", "Presentation", "Disclosure" ], "audience_level": "advanced", "student_note": "This is the \"tax equity\" accounting model expanded by ASU 2023-02 beyond affordable housing to all qualifying tax credit programs; the classic mistakes are treating the election as investment-by-investment (it is by tax credit program) and recognizing the full stream of future tax credits at the date of investment, which 323-740-25-5 forbids.", "related_topics": [ "323-10", "740-10", "740-30", "450", "842-50", "270-10" ], "key_concepts": [ "proportional amortization method", "tax credit investments", "flow-through limited liability entity", "significant influence", "income tax credits and other income tax benefits", "policy election by tax credit program", "delayed equity contributions", "low-income housing tax credit" ] } ``` Source downloaded (UTC): 2026-09-09T23:41:07.480Z to 2026-09-09T23:41:07.480Z Record version: sha256:43a37ef4ad4c3b9a7cc3cc8bbc4a9486d6221b62b957411a8a16ef9b959617f2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-740-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/323/740/#00-status) SEC content: no ##### [323-740-00-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-00-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:07.480Z to 2026-09-09T23:41:07.480Z Record version: sha256:2c30c844b51d148e9667ba661e247088ea3159f06ad4628eeb42f95f51fd294f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
Current Tax Expense (or Benefit)AddedAccounting Standards Update No. 2014-0101/15/2014
Deferred Tax Expense (or Benefit)AmendedAccounting Standards Update No. 2015-0101/09/2015
Income TaxesSupersededAccounting Standards Update No. 2014-0101/15/2014
Income Tax Expense (or Benefit)AddedAccounting Standards Update No. 2014-0101/15/2014
InvestorSupersededAccounting Standards Update No. 2014-0101/15/2014
Not-for-Profit EntityAddedAccounting Standards Update No. 2014-0101/15/2014
Public Business EntityAmendedMaintenance Update 2017-06 (PDF)04/07/2017
Public Business EntityAmendedMaintenance Update 2016-11 (PDF)06/27/2016
Public Business EntityAddedAccounting Standards Update No. 2014-0101/15/2014
323-740-05-1AmendedAccounting Standards Update No. 2023-0203/29/2023
323-740-05-2SupersededAccounting Standards Update No. 2023-0203/29/2023
323-740-05-2AmendedAccounting Standards Update No. 2014-0101/15/2014
323-740-05-3SupersededAccounting Standards Update No. 2023-0203/29/2023
323-740-05-3AmendedAccounting Standards Update No. 2014-0101/15/2014
323-740-15-1AmendedAccounting Standards Update No. 2023-0203/29/2023
323-740-15-1AAddedAccounting Standards Update No. 2023-0203/29/2023
323-740-15-2SupersededAccounting Standards Update No. 2023-0203/29/2023
323-740-15-3SupersededAccounting Standards Update No. 2023-0203/29/2023
323-740-15-3AmendedAccounting Standards Update No. 2014-0101/15/2014
323-740-25-1 through 25-1C
AmendedAccounting Standards Update No. 2023-0203/29/2023
323-740-25-1AmendedAccounting Standards Update No. 2014-0101/15/2014
323-740-25-1A through 25-1C
AddedAccounting Standards Update No. 2014-0101/15/2014
323-740-25-2SupersededAccounting Standards Update No. 2023-0203/29/2023
323-740-25-2AmendedAccounting Standards Update No. 2014-0101/15/2014
323-740-25-2ASupersededAccounting Standards Update No. 2023-0203/29/2023
323-740-25-2AAddedAccounting Standards Update No. 2016-0101/05/2016
323-740-25-3 through 25-6
AmendedAccounting Standards Update No. 2023-0203/29/2023
323-740-25-3AmendedAccounting Standards Update No. 2016-0202/25/2016
323-740-25-4AmendedAccounting Standards Update No. 2014-0101/15/2014
323-740-25-5AmendedAccounting Standards Update No. 2014-0101/15/2014
323-740-25-6AmendedAccounting Standards Update No. 2016-0101/05/2016
323-740-30-1AmendedAccounting Standards Update No. 2023-0203/29/2023
323-740-30-1AmendedAccounting Standards Update No. 2014-0101/15/2014
323-740-30-2AmendedAccounting Standards Update No. 2023-0203/29/2023
323-740-30-2AmendedAccounting Standards Update No. 2016-0101/05/2016
323-740-35-1 through 35-6
AmendedAccounting Standards Update No. 2023-0203/29/2023
323-740-35-4 through 35-6
AmendedAccounting Standards Update No. 2014-0101/15/2014
323-740-35-4 through 35-6
AddedAccounting Standards Update No. 2014-0101/15/2014
323-740-45-1AmendedAccounting Standards Update No. 2023-0203/29/2023
323-740-45-1AmendedAccounting Standards Update No. 2014-0101/15/2014
323-740-45-2AmendedAccounting Standards Update No. 2014-0101/15/2014
323-740-45-3AmendedAccounting Standards Update No. 2023-0203/29/2023
323-740-45-3AmendedAccounting Standards Update No. 2016-0101/05/2016
323-740-50-1AmendedAccounting Standards Update No. 2023-0203/29/2023
323-740-50-1AddedAccounting Standards Update No. 2014-0101/15/2014
323-740-50-1AAmendedAccounting Standards Update No. 2025-1112/08/2025
323-740-50-1AAddedAccounting Standards Update No. 2023-0203/29/2023
323-740-50-2AmendedAccounting Standards Update No. 2025-1112/08/2025
323-740-50-2AmendedAccounting Standards Update No. 2023-0203/29/2023
323-740-50-2AddedAccounting Standards Update No. 2014-0101/15/2014
323-740-55-2AmendedAccounting Standards Update No. 2023-0203/29/2023
323-740-55-2 through 55-5
AmendedAccounting Standards Update No. 2014-0101/15/2014
323-740-55-4AmendedAccounting Standards Update No. 2023-0203/29/2023
323-740-55-5AmendedAccounting Standards Update No. 2023-0203/29/2023
323-740-55-6SupersededAccounting Standards Update No. 2014-0101/15/2014
323-740-55-7 through 55-9
SupersededAccounting Standards Update No. 2023-0203/29/2023
323-740-55-7AmendedAccounting Standards Update No. 2014-0101/15/2014
323-740-55-8AmendedAccounting Standards Update No. 2019-1212/18/2019
323-740-55-8AmendedAccounting Standards Update No. 2014-0101/15/2014
323-740-55-10SupersededAccounting Standards Update No. 2014-0101/15/2014
323-740-55-11 through 55-14
AddedAccounting Standards Update No. 2023-0203/29/2023
323-740-65-1AddedAccounting Standards Update No. 2014-0101/15/2014
323-740-65-2AddedAccounting Standards Update No. 2023-0203/29/2023
Source downloaded (UTC): 2026-09-09T23:41:09.897Z to 2026-09-09T23:41:09.897Z Record version: sha256:cc82ffa7efa1bd770f04d50e8aef18af8e98b74bbdad3725c5b76c79bfb2cd97 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-740-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/323/740/#05-overview-and-background) SEC content: no ### Proportional Amortization Method ##### [323-740-05-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-05-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:09.897Z to 2026-09-09T23:41:09.897Z Record version: sha256:3b9777aa9c24f6b6b35b85b88b58ef99d6882d125b2e084ab7fb2ad6dc4d5145 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic contains standalone guidance on the use of the proportional amortization method to investments made primarily for the purpose of receiving income tax credits and other income tax benefits. Income tax accounting guidance on other types of equity method investments and joint ventures is contained in Subtopics 740-10 and 740-30. ##### [323-740-05-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-05-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:09.897Z to 2026-09-09T23:41:09.897Z Record version: sha256:50f5618f9be244113d0cdb4718a1620c028d30766d5e165a21284aeca6f8dbe0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2023-02.](https://asc.understandingaccounting.org/updates/asu-2023-02/) ##### [323-740-05-3](https://asc.understandingaccounting.org/asc/323/740/#323-740-05-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:09.897Z to 2026-09-09T23:41:09.897Z Record version: sha256:99e9ef8e3d972833779484c2f86ed47ecec3dcbec07f1259ce9d4d9f9c6e3e72 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2023-02.](https://asc.understandingaccounting.org/updates/asu-2023-02/) Source downloaded (UTC): 2026-09-09T23:41:11.801Z to 2026-09-09T23:41:11.801Z Record version: sha256:c8d3832d27078a17d6e787f4475175d89460c1af64c91c1048dc189a4ab31a80 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-740-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/323/740/#15-scope-and-scope-exceptions) SEC content: no ### Proportional Amortization Method #### Overall Guidance ##### [323-740-15-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-15-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:11.801Z to 2026-09-09T23:41:11.801Z Record version: sha256:2b0027aaf2ee9a5acdcb605c0804db9ac5f1ca5afb87f16a9d0685c2c4dd9f9e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 323-10-15, with specific transaction qualifications and disclosure requirements noted in paragraph [323-740-15-1A](https://asc.understandingaccounting.org/asc/323/740/#323-740-15-1A). ##### [323-740-15-1A](https://asc.understandingaccounting.org/asc/323/740/#323-740-15-1A) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:11.801Z to 2026-09-09T23:41:11.801Z Record version: sha256:9aa23319bee8f49c37652033fada540515de9aee2de3ece1ddfe566fb6e5d288 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in the Proportional Amortization Method Subtopic applies to equity investments that generate income tax credits and other income tax benefits from a tax credit program through limited liability entities that are flow-through entities for tax purposes, meet the criteria to be accounted for using the proportional amortization method in this Subtopic, and for which that method is elected on a tax-credit-program-by-tax-credit-program basis in accordance with paragraph [323-740-25-4](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-4). Additionally, the disclosure requirements in paragraphs [323-740-50-1 through 50-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-50-1) shall be applied to all investments that generate income tax credits and other income tax benefits from a tax credit program for which the entity has elected to apply the proportional amortization method, including investments within that elected program that do not meet the conditions to apply the proportional amortization method. ##### [323-740-15-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-15-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:11.801Z to 2026-09-09T23:41:11.801Z Record version: sha256:492bed3ceb88183c4b18ef26e0fc1af9a5f4a1dde5a02edeedcb48052ae61d11 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2023-02.](https://asc.understandingaccounting.org/updates/asu-2023-02/) ##### [323-740-15-3](https://asc.understandingaccounting.org/asc/323/740/#323-740-15-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:11.801Z to 2026-09-09T23:41:11.801Z Record version: sha256:b59c83985fda3914e27926b5724e702904669810dbebaa106420a06bd1c95cf2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2023-02.](https://asc.understandingaccounting.org/updates/asu-2023-02/) Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:f1df001e724816b66d881d5c56e6b91d20fa2c0350e7ea6c61cfcb06376472cf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-740-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/323/740/#25-recognition) SEC content: no ### Proportional Amortization Method ##### [323-740-25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:4244040f4f2e1636842e609f1b2df6c3bb1a540265a5dd2817026d3b79be14f2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A reporting entity that invests in projects that generate income tax credits and other income tax benefits from a tax credit program through limited liability entities (that is, the investor) may elect to account for those investments using the proportional amortization method (described in paragraphs [323-740-35-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-35-2) and [323-740-45-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-45-2)) if elected in accordance with paragraph [323-740-25-4](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-4), provided all of the following conditions are met: 1. a It is [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") that the income tax credits allocable to the investor will be available. 2. aa The investor does not have the ability to exercise [significant influence](https://asc.understandingaccounting.org/glossary/s/#significant-influence "Paragraphs 323-10-15-6323-10-15-7323-10-15-8323-10-15-9323-10-15-10323-10-15-11 define significant influence.") over the operating and financial policies of the underlying project. 3. aaa Substantially all of the projected benefits are from income tax credits and other income tax benefits (for example, tax benefits generated from the operating losses of the investment). Projected benefits include, but are not limited to, income tax credits, other income tax benefits, and other non-income-tax-related benefits, including refundable tax credits (that is, those tax credits not dependent upon an investor’s income tax liability). Tax credits accounted for outside of the scope of Topic 740 (for example, refundable tax credits) shall be included in total projected benefits, but not in income tax credits and other income tax benefits when evaluating this condition. This condition shall be determined on a discounted basis using a discount rate that is consistent with the cash flow assumptions utilized by the investor for the purpose of making a decision to invest in the project. 4. b The investor's projected yield based solely on the cash flows from the income tax credits and other income tax benefits is positive. 5. c The investor is a limited liability investor in the limited liability entity for both legal and tax purposes, and the investor's liability is limited to its capital investment. ##### [323-740-25-1A](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1A) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:b694bd1dfb1c15d561f4f261f0bfc88b6da3192b003d409a8216654f73475cb8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In determining whether an investor has the ability to exercise significant influence over the operating and financial policies of the underlying project, a reporting entity shall consider the indicators of significant influence in paragraphs [323-10-15-6 through 15-7](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-6) . In considering the operating and financial policies of the underlying project, the investor shall consider the operations, financial decisions, and related objectives of the project as a whole. ##### [323-740-25-1B](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1B) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:9edf0f7941753ff427ceca277509c7d726c2b0f042a87c919d9b20dcd5a8dd82 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Other transactions between the investor and the limited liability entity (for example, bank loans) shall not be considered when determining whether the conditions in paragraph [323-740-25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1) are met, provided that all three of the following conditions are met: 1. a The reporting entity is in the business of entering into those other transactions (for example, a financial institution that regularly extends loans to other projects). 2. b The terms of those other transactions are consistent with the terms of arm's-length transactions. 3. c The reporting entity does not acquire the ability to exercise significant influence over the operating and financial policies of the underlying project as a result of those other transactions. ##### [323-740-25-1C](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1C) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:e99eb47798b55adc776a2a6d93d33bdfa02eecb5825ef5cd615522eb1a5034f5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the time of the initial investment, a reporting entity shall evaluate whether the conditions in paragraphs [323-740-25-1 through 25-1B](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1) have been met to elect to apply the proportional amortization method on the basis of facts and circumstances that exist at that time. A reporting entity shall subsequently reevaluate the conditions upon the occurrence of either of the following: 1. a A change in the nature of the investment (for example, if the investment is no longer in a flow-through entity for tax purposes) 2. b A change in the relationship with the underlying project that could result in the reporting entity no longer meeting the conditions in paragraphs [323-740-25-1 through 25-1B](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1). ##### [323-740-25-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:7515ba7c5b40e411bca84e83e3611d1a60adb49bcef775e0d0e990589d6c2ff3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2023-02.](https://asc.understandingaccounting.org/updates/asu-2023-02/) ##### [323-740-25-2A](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-2A) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:c59b0e04414156bae0ed20c6b7168ba71322ef21bfe57b3dc87d97b229b6e336 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2023-02.](https://asc.understandingaccounting.org/updates/asu-2023-02/) ##### [323-740-25-3](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:6de1ebe68efacf3473465447f8ed8c0b142298fb2f83a242581aae0319f4ccfa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A liability shall be recognized for delayed equity contributions that are unconditional and legally binding. A liability also shall be recognized for equity contributions that are contingent upon a future [event](https://asc.understandingaccounting.org/glossary/e/#event "A happening of consequence to an entity. The term encompasses both transactions and other events affecting an entity.") when that contingent event becomes [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur."). Topic 450 and paragraph [842-50-55-2](https://asc.understandingaccounting.org/asc/842/50/#842-50-55-2) provide additional guidance on the accounting for delayed equity contributions. ##### [323-740-25-4](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:0fb4cb6fc966091becf34982f448bd5a9784899a0d6c922aa6e1fb2bc0cb3e83 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The decision to apply the proportional amortization method is an accounting policy decision to be elected on a tax-credit-program-by-tax-credit-program basis that shall be applied consistently to all investments within an elected tax credit program that meet the conditions in paragraph [323-740-25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1) rather than a decision to be applied to individual investments that meet the conditions in paragraph [323-740-25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1). ##### [323-740-25-5](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:fbe161aef1ba6e61ce44bed985bcc19b109b791cab84ec10d21c691468cfffc4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall recognize income tax credits in the period that they are allocated to the investor for tax purposes. Unless all income tax credits are allocated to the investor at the date of initial investment, immediate recognition of the entire benefit of the income tax credits to be received during the term of an investment that generates income tax credits and other income tax benefits from a tax credit program is not permitted (that is, income tax credits shall not be recognized in the financial statements before the year in which the credit arises). ##### [323-740-25-6](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:eecec0bfe2531dd4b50b2310a9d8251e4ec5691a8e6c2bfc5620fe6a85e9632e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 1 (see paragraph [323-740-55-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-2)) illustrates the application of the proportional amortization method to a limited partnership investment that generates income tax credits and other income tax benefits from a tax credit program. Example 2 (see paragraph [323-740-55-11](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-11)) illustrates the application of the proportional amortization method to a limited partnership investment that generates income tax credits, other income tax benefits, and non-income-tax-related benefits from a tax credit program. Source downloaded (UTC): 2026-09-09T23:41:19.906Z to 2026-09-09T23:41:19.906Z Record version: sha256:af46f9daad6247974531d6c6d3a673015edbda85d7d2f921c146a249070de5a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-740-30: 30 Initial Measurement [Read section](https://asc.understandingaccounting.org/asc/323/740/#30-initial-measurement) SEC content: no ### Proportional Amortization Method ##### [323-740-30-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-30-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:19.906Z to 2026-09-09T23:41:19.906Z Record version: sha256:e3724047e8fb1d7eb32cbb727d8dc406937e86921c6b8956040e0db9a40e262e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [323-740-25-5](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-5) prohibits immediate recognition of income tax credits, at the time of initial investment, for the entire benefit of tax credits to be received over a period of time during the term of an investment that generates income tax credits and other income tax benefits from a tax credit program (that is, income tax credits shall not be recognized in the financial statements before the year in which the credit arises). ##### [323-740-30-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-30-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:19.906Z to 2026-09-09T23:41:19.906Z Record version: sha256:fa2bb52283e790eaf73504f18e4d7666475554b3a2044597b700610ffdda1733 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 1 (see paragraph [323-740-55-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-2)) illustrates the application of the proportional amortization method to a limited partnership investment that generates income tax credits and other income tax benefits from a tax credit program. Example 2 (see paragraph [323-740-55-11](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-11)) illustrates the application of the proportional amortization method to a limited partnership investment that generates income tax credits, other income tax benefits, and non-income-tax-related benefits from a tax credit program. Source downloaded (UTC): 2026-09-09T23:41:22.838Z to 2026-09-09T23:41:22.838Z Record version: sha256:400f40279df216cfc5d1b680b8d6270713ef79f5eb6a244c91d661b0a1c642ec Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-740-35: 35 Subsequent Measurement [Read section](https://asc.understandingaccounting.org/asc/323/740/#35-subsequent-measurement) SEC content: no ### Proportional Amortization Method ##### [323-740-35-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-35-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:22.838Z to 2026-09-09T23:41:22.838Z Record version: sha256:4b5e1e90b2570172c60ef115aafb6f045d30dea378d4d9c3aedb931d8c3638a7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance addresses the methodology for measuring an investment that is accounted for using the proportional amortization method. ##### [323-740-35-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-35-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:22.838Z to 2026-09-09T23:41:22.838Z Record version: sha256:a397150800bbd0648b628047375d5927172ef214b9703656d78d1284c23434cb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under the proportional amortization method, the investor amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits allocated to the investor. The amortization amount shall be calculated as follows: 1. a The initial investment balance less any expected residual value of the investment, multiplied by 2. b The percentage of actual income tax credits and other income tax benefits allocated to the investor in the current period divided by the total estimated income tax credits and other income tax benefits expected to be received by the investor over the life of the investment. ##### [323-740-35-3](https://asc.understandingaccounting.org/asc/323/740/#323-740-35-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:22.838Z to 2026-09-09T23:41:22.838Z Record version: sha256:f45021038f349d06ba37a54ccebf50b0e98c4e5a0e8c1e8d94b5da7ff5ffd5d7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 1 (see paragraph [323-740-55-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-2)) illustrates the application of the proportional amortization method to a limited liability investment that generates income tax credits and other income tax benefits from a tax credit program. Example 2 (see paragraph [323-740-55-11](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-11)) illustrates the application of the proportional amortization method to a limited partnership investment that generates income tax credits, other income tax benefits, and non-income-tax-related benefits from a tax credit program. ##### [323-740-35-4](https://asc.understandingaccounting.org/asc/323/740/#323-740-35-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:22.838Z to 2026-09-09T23:41:22.838Z Record version: sha256:5aeb97b693ab4232d82b9766f06a85af7046c9338e562f2cddb8424031d47c5b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As a practical expedient, an investor is permitted to amortize the initial cost of the investment in proportion to only the income tax credits allocated to the investor if the investor reasonably expects that doing so would produce a measurement that is substantially similar to the measurement that would result from applying the requirement in paragraph [323-740-35-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-35-2). ##### [323-740-35-5](https://asc.understandingaccounting.org/asc/323/740/#323-740-35-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:22.838Z to 2026-09-09T23:41:22.838Z Record version: sha256:10e9e1ffa180e2418ef53c48317a510c3332d048a0590e738ffec8c5ab9af7ea Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Any expected residual value of the investment shall be excluded from the proportional amortization calculation. Non-income-tax-related benefits received from operations of the limited liability entity shall be included in pre-tax earnings when realized or realizable. Gains or losses on the sale of the investment, if any, shall be included in pre-tax earnings at the time of sale. ##### [323-740-35-6](https://asc.understandingaccounting.org/asc/323/740/#323-740-35-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:22.838Z to 2026-09-09T23:41:22.838Z Record version: sha256:65c3583b2f3c41fd1a88b201e15e1c2b5da616f2bfb03e6d5a9fe8519c7965f0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investment shall be tested for impairment when events or changes in circumstances indicate that it is more likely than not that the carrying amount of the investment will not be realized. An impairment loss shall be measured as the amount by which the carrying amount of an investment exceeds its fair value. A previously recognized impairment loss shall not be reversed. Source downloaded (UTC): 2026-09-09T23:41:25.607Z to 2026-09-09T23:41:25.607Z Record version: sha256:aa3c56486247aa0db5c48ba402f3ed13c4d4c1e74a112bf5c7852bc0714851a9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-740-45: 45 Other Presentation Matters [Read section](https://asc.understandingaccounting.org/asc/323/740/#45-other-presentation-matters) SEC content: no ### Proportional Amortization Method ##### [323-740-45-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-45-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:25.607Z to 2026-09-09T23:41:25.607Z Record version: sha256:0be57cbe5066f3111d021107f5db5f9007948d503457477e831e601422a3d265 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance addresses the income statement presentation of an investment that is accounted for using the proportional amortization method. ##### [323-740-45-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-45-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:25.607Z to 2026-09-09T23:41:25.607Z Record version: sha256:8c0fc2f1466485eee61662d59dd9203eca9eee460d2301f0ef882ca147da1868 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under the proportional amortization method, the amortization of the investment in the limited liability entity is recognized in the income statement as a component of [income tax expense (or benefit)](https://asc.understandingaccounting.org/glossary/i/#income-tax-expense-or-benefit "The sum of current tax expense (or benefit) and deferred tax expense (or benefit)."). The [current tax expense (or benefit)](https://asc.understandingaccounting.org/glossary/c/#current-tax-expense-or-benefit "The amount of income taxes paid or payable (or refundable) for a year as determined by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues for that year.") shall be accounted for pursuant to the general requirements of Topic 740. ##### [323-740-45-3](https://asc.understandingaccounting.org/asc/323/740/#323-740-45-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:25.607Z to 2026-09-09T23:41:25.607Z Record version: sha256:e28b064e32f61f89a3fcd0bd153fd690bea7fea5cff6617c9e2c691ca83f76f4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 1 (see paragraph [323-740-55-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-2)) illustrates the application of the proportional amortization method to a limited partnership investment that generates income tax credits and other income tax benefits from a tax credit program. Example 2 (see paragraph [323-740-55-11](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-11)) illustrates the application of the proportional amortization method to a limited partnership investment that generates income tax credits, other income tax benefits, and non-income-tax-related benefits from a tax credit program. Source downloaded (UTC): 2026-09-09T23:41:29.117Z to 2026-09-09T23:41:29.117Z Record version: sha256:cdc2d67a11e6f04f6a549b4b7aa26d071b7cbce7783bc8fe33771807c960bb84 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-740-50: 50 Disclosure [Read section](https://asc.understandingaccounting.org/asc/323/740/#50-disclosure) SEC content: no ### Proportional Amortization Method ##### [323-740-50-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-50-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:29.117Z to 2026-09-09T23:41:29.117Z Record version: sha256:3e608239cc804842bd8efe85124eabe4e1674b359e7423611a6d6de20d61f37e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A reporting entity shall disclose information in annual and interim periods that enables users of its financial statements to understand the following information about its investments that generate income tax credits and other income tax benefits from a tax credit program for which it has elected on a tax-credit-program-by-tax-credit-program basis to apply the proportional amortization method, including investments within that elected tax credit program that do not meet the conditions in paragraph [323-740-25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1): 1. a The nature of its investments 2. b The effect of the recognition and measurement of its investments and the related income tax credits and other income tax benefits on its financial position and results of operations. ##### [323-740-50-1A](https://asc.understandingaccounting.org/asc/323/740/#323-740-50-1A) Pending content: yes Source downloaded (UTC): 2026-09-09T23:41:29.117Z to 2026-09-09T23:41:29.117Z Record version: sha256:fbed2265ebb09232d26926542a628f673b7c506806f093bf4fba926c62ee188c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To meet the objectives in paragraph [323-740-50-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-50-1), a reporting entity shall disclose the following information about its investments that generate income tax credits and other income tax benefits from a tax credit program for which it has elected on a tax-credit-program-by-tax-credit-program basis to apply the proportional amortization method, including investments within that elected tax credit program that do not meet the conditions in paragraph [323-740-25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1): 1. a The amount of income tax credits and other income tax benefits recognized during the period, including the line item in the statement of operations and statement of cash flows in which it has been recognized 2. b The amount of investments and the line item in which the investments are recognized in the statement of financial position 3. c For investments accounted for using the proportional amortization method, the amount of investment amortization recognized as a component of income tax expense (benefit) 4. d For investments accounted for using the proportional amortization method, the amount of non-income-tax-related activity and other returns received that is recognized outside of income tax expense (benefit) and the line item in the statement of operations and statement of cash flows in which it has been recognized 5. e For investments accounted for using the proportional amortization method, significant modifications or events that resulted in a change in the nature of the investment or a change in the relationship with the underlying project. Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance: [270-10-65-1](https://asc.understandingaccounting.org/asc/270/10/#270-10-65-1)To meet the objectives in paragraph [323-740-50-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-50-1), a reporting entity shall disclose the following information in annual and interim reporting periods about its investments that generate income tax credits and other income tax benefits from a tax credit program for which it has elected on a tax-credit-program-by-tax-credit-program basis to apply the proportional amortization method, including investments within that elected tax credit program that do not meet the conditions in paragraph [323-740-25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1): 1. a The amount of income tax credits and other income tax benefits recognized during the period, including the line item in the statement of operations and statement of cash flows in which it has been recognized 2. b The amount of investments and the line item in which the investments are recognized in the statement of financial position 3. c For investments accounted for using the proportional amortization method, the amount of investment amortization recognized as a component of income tax expense (benefit) 4. d For investments accounted for using the proportional amortization method, the amount of non-income-tax-related activity and other returns received that is recognized outside of income tax expense (benefit) and the line item in the statement of operations and statement of cash flows in which it has been recognized 5. e For investments accounted for using the proportional amortization method, significant modifications or events that resulted in a change in the nature of the investment or a change in the relationship with the underlying project. ##### [323-740-50-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-50-2) Pending content: yes Source downloaded (UTC): 2026-09-09T23:41:29.117Z to 2026-09-09T23:41:29.117Z Record version: sha256:b1548199f670cc7a22f4a1c1039e8ff4ebe7af222b6ab164294309a230416694 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To meet the objectives in paragraph [323-740-50-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-50-1), a reporting entity may consider disclosing the following about its investments that generate income tax credits and other income tax benefits from a tax credit program for which it has elected on a tax-credit-program-by-tax-credit-program basis to apply the proportional amortization method, including investments within that elected tax credit program that do not meet the conditions in paragraph [323-740-25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1): 1. a [Subparagraph superseded by Accounting Standards Update No. 2023-02](https://asc.understandingaccounting.org/updates/asu-2023-02/). 2. b [Subparagraph superseded by Accounting Standards Update No. 2023-02](https://asc.understandingaccounting.org/updates/asu-2023-02/). 3. c [Subparagraph superseded by Accounting Standards Update No. 2023-02](https://asc.understandingaccounting.org/updates/asu-2023-02/). 4. d For investments accounted for using the equity method, the amount of investment income or loss included in pretax income 5. e Any commitments or contingent commitments (for example, guarantees or commitments to provide additional capital contributions), including the amount of delayed equity contributions and the year or years in which contingent commitments are expected to be paid 6. f The amount and nature of impairment losses during the year resulting from the forfeiture or ineligibility of income tax credits or other circumstances. For example, in a qualified affordable housing project investment, those impairment losses may be based on actual property-level foreclosures, loss of qualification due to occupancy levels, compliance issues with tax code provisions, or other issues. Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance: [270-10-65-1](https://asc.understandingaccounting.org/asc/270/10/#270-10-65-1)To meet the objectives in paragraph [323-740-50-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-50-1), a reporting entity may consider disclosing the following in annual and interim reporting periods about its investments that generate income tax credits and other income tax benefits from a tax credit program for which it has elected on a tax-credit-program-by-tax-credit-program basis to apply the proportional amortization method, including investments within that elected tax credit program that do not meet the conditions in paragraph [323-740-25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1): 1. a [Subparagraph superseded by Accounting Standards Update No. 2023-02](https://asc.understandingaccounting.org/updates/asu-2023-02/). 2. b [Subparagraph superseded by Accounting Standards Update No. 2023-02](https://asc.understandingaccounting.org/updates/asu-2023-02/). 3. c [Subparagraph superseded by Accounting Standards Update No. 2023-02](https://asc.understandingaccounting.org/updates/asu-2023-02/). 4. d For investments accounted for using the equity method, the amount of investment income or loss included in pretax income 5. e Any commitments or contingent commitments (for example, guarantees or commitments to provide additional capital contributions), including the amount of delayed equity contributions and the year or years in which contingent commitments are expected to be paid 6. f The amount and nature of impairment losses during the year resulting from the forfeiture or ineligibility of income tax credits or other circumstances. For example, in a qualified affordable housing project investment, those impairment losses may be based on actual property-level foreclosures, loss of qualification due to occupancy levels, compliance issues with tax code provisions, or other issues. Source downloaded (UTC): 2026-09-09T23:41:32.886Z to 2026-09-09T23:41:32.886Z Record version: sha256:e74190859775c112805ea012b17998913d5f0cc94323d42f262278a9278c5869 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-740-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/323/740/#55-implementation-guidance-and-illustrations) SEC content: no ### Proportional Amortization Method ##### [323-740-55-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:32.886Z to 2026-09-09T23:41:32.886Z Record version: sha256:4d8d1e06b5e2b840e0d81fb780b5ee73e627bfb2019b37d8637b4e03f6c50b83 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section is an integral part of the requirements of this Subtopic. #### Illustrations ##### [323-740-55-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:32.886Z to 2026-09-09T23:41:32.886Z Record version: sha256:15d873bf5df9e19ceef2988a21b43675581871fea769ed7a47dbba46524d0a95 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the proportional amortization method of accounting for a limited liability investment in a low-income-housing tax credit structure, which is a type of investment that may be eligible to be accounted for using the proportional amortization method. ##### [323-740-55-3](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:32.886Z to 2026-09-09T23:41:32.886Z Record version: sha256:e57f5e029fe1912774adcb4ef393b8620869046ca1736e6b484c60e532fcb3bc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following are the terms for this Example. - ![](https://asc.understandingaccounting.org/asc-img/GUID-4259E733-D2B4-486F-A112-0A8B29A66143-low.gif) Date of investment "January 1, 20X1" Purchase Price of Investment " $100,000 " ##### [323-740-55-4](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:32.886Z to 2026-09-09T23:41:32.886Z Record version: sha256:8600a98a8fae1bde24be2e462677d1646ffd9e958fe23d25a690b253f7790379 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example has the following assumptions: 1. a All cash flows (except initial investment) occur at the end of each year. 2. b Depreciation expense is computed, for book and tax purposes, using the straight-line method with a 27.5 year life (the same method is used for simplicity). 3. c The investor made a $100,000 investment for a 5 percent limited partnership interest in the project at the beginning of the first year of eligibility for the tax credit. 4. d The partnership finances the project cost of $4,000,000 with 50 percent equity and 50 percent debt. 5. e The annual tax credit allocation (equal to 4 percent of the project's original cost) will be received for a period of 10 years. 6. f The investor's tax rate is 40 percent. 7. g The project will operate with break-even pretax cash flows including debt service during the first 15 years of operations. 8. h The project's taxable loss will be equal to depreciation expense. The cumulative book loss (and thus the cumulative depreciation expense) recognized by the investor is limited to the $100,000 investment. 9. i [Subparagraph superseded by Accounting Standards Update No. 2014-01](https://asc.understandingaccounting.org/updates/asu-2014-01/). 10. j It is assumed that all requirements are met to retain allocable tax credits so there will be no recapture of tax credits. 11. k The investor expects that the estimated residual value of the investment will be zero. 12. l All of the conditions described in paragraph [323-740-25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1) are met to apply the proportional amortization method, and the entity has elected to use the proportional amortization method to account for its tax equity investments in this tax credit program in accordance with paragraph [323-740-25-4](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-4). ##### [323-740-55-5](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:32.886Z to 2026-09-09T23:41:32.886Z Record version: sha256:f7ac188e9e81033d0629894255b0178ad4838d8f0b78466ef64cacaa8f346c76 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An analysis of the proportional amortization method follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-22F33BDA-CDD8-47BB-A76F-BA545BB4C2CE-low.gif) EITF 13-B Examples: Comparison of Effecftive Yield and Proportional Amortization Methods Effective Yield Method Year "Net Investment (1)" After Tax Effective Yield (2) "Amortization of Investment (3)" "Pre-tax Amortization of Investment (4)" "Tax Credits (5)" "Net losses/Tax Depreciation (6)" Tax Savings (7) "Total Tax Benefit (8)" "Current Tax Benefit (9)" "Deferred Tax Benefit (Expense) (10)" "Impact on Net Income (11)" 0 " $(100,000)" 1 " $95,289 " " $14,198 " " $4,711 " " $3,004 " " $16,000 " " $7,273 " " $2,909 " " $18,909 " " $15,905 " " $(1,708)" " $14,198 " 2 " 89,909 " " 13,529 " " 5,380 " " 4,118 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 14,791 " " (1,262)" " 13,529 " 3 " 83,764 " " 12,765 " " 6,144 " " 5,392 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 13,517 " (752) " 12,765 " 4 " 76,748 " " 11,893 " " 7,016 " " 6,845 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 12,064 " (171) " 11,893 " 5 " 68,736 " " 10,897 " " 8,013 " " 8,506 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 10,403 " 493 " 10,897 " 6 " 59,585 " " 9,759 " " 9,150 " " 10,402 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 8,507 " " 1,252 " " 9,759 " 7 " 49,136 " " 8,460 " " 10,449 " " 12,567 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 6,342 " " 2,118 " " 8,460 " 8 " 37,203 " " 6,976 " " 11,933 " " 15,040 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 3,869 " " 3,107 " " 6,976 " 9 " 23,576 " " 5,282 " " 13,627 " " 17,863 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 1,046 " " 4,236 " " 5,282 " 10 " 8,014 " " 3,347 " " 15,562 " " 21,088 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " (2,179)" " 5,526 " " 3,347 " 11 " 6,243 " " 1,138 " " 1,771 " " (1,896)" - " 7,273 " " 2,909 " " 2,909 " " 4,806 " " (3,668)" " 1,138 " 12 " 4,220 " 886 " 2,023 " " (1,477)" - " 7,273 " " 2,909 " " 2,909 " " 4,386 " " (3,500)" 886 13 " 1,911 " 599 " 2,310 " (999) - " 7,273 " " 2,909 " " 2,909 " " 3,908 " " (3,309)" 599 14 - 271 " 1,911 " (452) - " 5,455 " " 2,182 " " 2,182 " " 2,634 " " (2,363)" 271 15 - - - - - - - - - - - Total " $100,000 " " $100,000 " " $100,000 " " $160,000 " " $100,000 " " $40,000 " " $200,000 " " $100,000 " $(0) " $100,000 " internal rate of return based on tax credits and other tax benefits 14.20% (1) End-of-year investment for a 5% limited partnership interest in the project net of amortization in Column (3) (2) Beginning investment x 14.20% (3) Column (5) + (Column (6) x 40% tax rate) - Column (2) (4) (Column (5) - Column (2)) / (1 - 40% tax rate) (5) "8 percent tax credit on $200,000 tax basis of underlying assets" (6) "Depreciation (on $200,000 tax basis of the underlying assets) using the straight-line method over 27.5 years." (7) Column (6) x 40% tax rate (8) Column (5) + Column (7) (9) Column (5) - Column (4) + (Column (6) x 40% tax rate). (10) "The change in deferred taxes resulting from the difference between the book and tax bases of the investment. In this Example, that amount can be determined as follows: (Column (4) - Column (6)) x 40% tax rate." (11) Column (9) + Column (10) STAFF RECOMMENDATION Proportional Amortization Method - Amortization in proportion to tax credits only Year "Net Investment (1)" "Tax Basis of Investment (2)" "Amortization of Investment (3)" "Tax Credits (4)" "Net losses/Tax Depreciation (5)" Tax Savings (6) "Total Tax Benefit (7)" "Deductible Temporary Difference (8)" Deferred Tax Asset (9) "Current Tax Benefit (10)" "Deferred Tax Benefit (Expense) (11)" "Impact on Net Income (12)" 0 " $(100,000)" 1 " $90,000 " " $92,727 " " $10,000 " " $16,000 " " $7,273 " " $2,909 " " $18,909 " " $2,727 " " $1,091 " " $8,909 " " $1,091 " " $10,000 " 2 " 80,000 " " 85,455 " " 10,000 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 5,455 " " 2,182 " " 8,909 " " 1,091 " " 10,000 " 3 " 70,000 " " 78,182 " " 10,000 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 8,182 " " 3,273 " " 8,909 " " 1,091 " " 10,000 " 4 " 60,000 " " 70,909 " " 10,000 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 10,909 " " 4,364 " " 8,909 " " 1,091 " " 10,000 " 5 " 50,000 " " 63,636 " " 10,000 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 13,636 " " 5,455 " " 8,909 " " 1,091 " " 10,000 " 6 " 40,000 " " 56,364 " " 10,000 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 16,364 " " 6,545 " " 8,909 " " 1,091 " " 10,000 " 7 " 30,000 " " 49,091 " " 10,000 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 19,091 " " 7,636 " " 8,909 " " 1,091 " " 10,000 " 8 " 20,000 " " 41,818 " " 10,000 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 21,818 " " 8,727 " " 8,909 " " 1,091 " " 10,000 " 9 " 10,000 " " 34,545 " " 10,000 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 24,545 " " 9,818 " " 8,909 " " 1,091 " " 10,000 " 10 - " 27,273 " " 10,000 " " 16,000 " " 7,273 " " 2,909 " " 18,909 " " 27,273 " " 10,909 " " 8,909 " " 1,091 " " 10,000 " 11 - " 20,000 " - - " 7,273 " " 2,909 " " 2,909 " " 20,000 " " 8,000 " " 2,909 " " (2,909)" - 12 - " 12,727 " - - " 7,273 " " 2,909 " " 2,909 " " 12,727 " " 5,091 " " 2,909 " " (2,909)" - 13 - " 5,455 " - - " 7,273 " " 2,909 " " 2,909 " " 5,455 " " 2,182 " " 2,909 " " (2,909)" - 14 - - - - " 5,455 " " 2,182 " " 2,182 " - - " 2,182 " " (2,182)" - 15 - - - - - - - - - - - - Total " $100,000 " " $160,000 " " $100,000 " " $40,000 " " $200,000 " " $100,000 " $- " $100,000 " (1) End-of-year investment for a 5% limited partnership interest in the project net of amortization in Column (3) (2) Beginning investment - Column (5) (3) "Initial investment of $100,000 x (Tax credits received during the year in Column (4) / Total anticipated tax credits in Column (4))" (4) "8 percent tax credit on $200,000 tax basis of underlying assets" (5) "Depreciation (on $200,000 tax basis of the underlying assets) using the straight-line method over 27.5 years." (6) Column (5) x 40% tax rate (7) Column (4) + Column (6) (8) Column (2) - Column (1) (9) Coulumn (8) x 40% tax rate (10) Column (7) - Column (3) (11) "The change in deferred taxes resulting from the difference between the book and tax bases of the investment. In this Example, that amount can be determined as follows: Difference between the current year amount in Column (9) - the prior year amount in Column (9)" (12) Column (10) + Column (11) Proportional Amortization Method - Amortization in proportion to tax credits and other tax benefits Year "Net Investment (1)" "Tax Basis of Investment (2)" "Amortization of Investment (2)" "Income Tax Credits (3)" "Net Losses/Tax Depreciation (4)" Other Income Tax Benefits from Tax Depreciation (5) "Income Tax Credits and Other Income Tax Benefits (6)" "Deductible Temporary Difference (8)" Deferred Tax Asset (9) "Current Tax Benefit (8)" "Deferred Tax Benefit (Expense) (11)" "Impact on Net Income (12)" "Income Tax Credits and Other Income Tax Benefits, Net of Amortization (7)" 0 " $(100,000)" 1 " $90,909 " " $92,727 " " $9,091 " " $8,000 " " $7,273 " " $2,909 " " $10,909 " " $2,182 " $873 " $9,454 " $873 " $10,327 " " $1,818 " 2 " 81,818 " " 85,454 " " 9,091 " " 8,000 " " 7,273 " " 2,909 " " 10,909 " " 4,364 " " 1,746 " " 9,454 " 873 " 10,327 " " 1,818 " 3 " 72,727 " " 78,181 " " 9,091 " " 8,000 " " 7,273 " " 2,909 " " 10,909 " " 6,546 " " 2,618 " " 9,454 " 873 " 10,327 " " 1,818 " 4 " 63,636 " " 70,908 " " 9,091 " " 8,000 " " 7,273 " " 2,909 " " 10,909 " " 8,728 " " 3,491 " " 9,454 " 873 " 10,327 " " 1,818 " 5 " 54,545 " " 63,635 " " 9,091 " " 8,000 " " 7,273 " " 2,909 " " 10,909 " " 10,910 " " 4,364 " " 9,454 " 873 " 10,327 " " 1,818 " 6 " 45,454 " " 56,362 " " 9,091 " " 8,000 " " 7,273 " " 2,909 " " 10,909 " " 13,092 " " 5,237 " " 9,454 " 873 " 10,327 " " 1,818 " 7 " 36,363 " " 49,089 " " 9,091 " " 8,000 " " 7,273 " " 2,909 " " 10,909 " " 15,274 " " 6,110 " " 9,454 " 873 " 10,327 " " 1,818 " 8 " 27,272 " " 41,816 " " 9,091 " " 8,000 " " 7,273 " " 2,909 " " 10,909 " " 17,456 " " 6,982 " " 9,454 " 873 " 10,327 " " 1,818 " 9 " 18,181 " " 34,543 " " 9,091 " " 8,000 " " 7,273 " " 2,909 " " 10,909 " " 19,638 " " 7,855 " " 9,454 " 873 " 10,327 " " 1,818 " 10 " 9,090 " " 27,270 " " 9,091 " " 8,000 " " 7,273 " " 2,909 " " 10,909 " " 21,820 " " 8,728 " " 9,454 " 873 " 10,327 " " 1,818 " 11 " 6,666 " " 19,997 " " 2,424 " - " 7,273 " " 2,909 " " 2,909 " " 16,002 " " 6,401 " " 1,454 " " (2,327)" (873) 485 12 " 4,242 " " 12,724 " " 2,424 " - " 7,273 " " 2,909 " " 2,909 " " 10,184 " " 4,074 " " 1,454 " " (2,327)" (873) 485 13 " 1,818 " " 5,451 " " 2,424 " - " 7,273 " " 2,909 " " 2,909 " " 4,366 " " 1,746 " " 1,454 " " (2,327)" (873) 485 14 - 0 " 1,818 " - " 5,451 " " 2,183 " " 2,183 " 0 0 " 1,098 " " (1,746)" (648) 365 15 - - - - - - - - - - - - - Total " $100,000 " " $80,000 " " $100,000 " " $40,000 " " $120,000 " " $100,000 " $0 " $100,000 " " $20,000 " (1) End-of-year investment for a 5% limited liability interest in the project net of amortization in Column (2). (2) "Initial investment of $100,000 x (total income tax benefits received during the year in Column (6) / total anticipated income tax benefits over the life of the investment of $120,000)." (3) "4 percent income tax credit on $200,000 tax basis of underlying assets." (4) "Depreciation (on $200,000 tax basis of the underlying assets) using the straight-line method over 27.5 years up to the amount of the initial investment of $100,000." (5) Column (4) x 40% tax rate. (6) Column (3) + Column (5). (8) Column (2) - Column (1) (9) Coulumn (8) x 40% tax rate (8) Column (7) - Column (3) (11) "The change in deferred taxes resulting from the difference between the book and tax bases of the investment. In this Example, that amount can be determined as follows: Difference between the current year amount in Column (9) - the prior year amount in Column (9)" (12) Column (10) + Column (11) (7) Column (6) – Column (2). ##### [323-740-55-6](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:32.886Z to 2026-09-09T23:41:32.886Z Record version: sha256:73ea046c536964b5af777055857aace06a43e7a6f8bbadd65edd03415c116fe5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2014-01](https://asc.understandingaccounting.org/updates/asu-2014-01/). ##### [323-740-55-7](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:32.886Z to 2026-09-09T23:41:32.886Z Record version: sha256:4ffe81d2cb6cf12d6e89987afc123b5d3293fddd550d08c85a385b06122ab22b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2023-02.](https://asc.understandingaccounting.org/updates/asu-2023-02/) ##### [323-740-55-8](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:32.886Z to 2026-09-09T23:41:32.886Z Record version: sha256:47e84978dc50579d3903a948c39abd7ec45315b41c5961f9c1dc2b4a1751c156 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2023-02.](https://asc.understandingaccounting.org/updates/asu-2023-02/) ##### [323-740-55-9](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-9) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:32.886Z to 2026-09-09T23:41:32.886Z Record version: sha256:75b00f02cf6f0a516a2bdace51029acb0778b70750caa114775db8e8e6710218 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2023-02.](https://asc.understandingaccounting.org/updates/asu-2023-02/) ##### [323-740-55-10](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-10) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:32.886Z to 2026-09-09T23:41:32.886Z Record version: sha256:f14bf91161775c37349410c8e510311d72ae790b53c7d00bf8df0fabc70ea9c9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2014-01](https://asc.understandingaccounting.org/updates/asu-2014-01/). ##### [323-740-55-11](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-11) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:32.886Z to 2026-09-09T23:41:32.886Z Record version: sha256:1531fe29f9ec78e2e05931f954de086e8878c9ce4c6335ff0eb80d2a4125f9ba Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the proportional amortization method for an investment that generates non-income-tax-related benefits in addition to income tax credits and other income tax benefits from a tax credit program. ##### [323-740-55-12](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-12) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:32.886Z to 2026-09-09T23:41:32.886Z Record version: sha256:2b5f5dd16606aecc7ec311afc03636d2bd2ec04ac81d76595e0afc9e162f6d02 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following are the terms for this Example: - ![](https://asc.understandingaccounting.org/asc-img/GUID-E77BBCF2-7EAB-4584-85A7-1717712EE319-low.gif) Date of investment: "January 1, 20X1" Purchase price of investment: "$102,000" ##### [323-740-55-13](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-13) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:32.886Z to 2026-09-09T23:41:32.886Z Record version: sha256:d89a63bb100ed877c6b5c3d64fe21ea213824d39201cde95998a2766200db8f6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example has the following assumptions: 1. a All cash flows (except the initial investment) occur at the end of each year. 2. b Depreciation expense is computed, for book and tax purposes, using the straight-line method with a 10-year life (the same method is used for simplicity). 3. c The investor contributed $102,000, or 5 percent of the equity capital, for an interest in the limited partnership at the beginning of the first year of eligibility for the income tax credit. 4. d The partnership will receive income tax credits from an income tax credit program. The income tax credits will be received over a four-year period. 5. e There is no reduction of tax basis as a result of the income tax credits. 6. f The investor will receive cash proceeds based on a fixed percentage of the project’s cash generated during the life of the project. 7. g The investor’s tax rate is 40 percent. 8. h The income tax credits are not subject to recapture. 9. i The investor expects that the estimated residual investment will be nominal (zero is assumed for simplicity). 10. j All of the conditions described in paragraph [323-740-25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1) are met to apply the proportional amortization method, and the entity has elected to use the proportional amortization method to account for its tax equity investments in this tax credit program in accordance with paragraph [323-740-25-4](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-4). 11. k After 10 years, the investor has a right to require that the project sponsor purchase the investor’s equity interest for a nominal amount (zero is assumed for simplicity). It is assumed that the option will be exercised. ##### [323-740-55-14](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-14) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:32.886Z to 2026-09-09T23:41:32.886Z Record version: sha256:18cc1160e9e415b3982db8a2ea6e594d25ed7a324946d6c18eab41c514ecf07c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An analysis of the proportional amortization method follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-4041E1C6-C095-456C-9C53-F508459B4386-low.gif) Year "Net Investment (a)" Amortization of Investment (b) Income Tax Credits (c) Net Losses / Tax Depreciation (d) Other Income Tax Benefits from Tax Depreciation (e) "Income Tax Credits and Other Income Tax Benefits (f)" "Income Tax Credits and Other Income Tax Benefits, Net of Amortization (g)" "Non-Income-Tax-Related Cash Returns (h)" 1 " $81,600 " " $20,400 " " $20,000 " " $10,000 " " $4,000 " " $24,000 " " $3,600 " $200 2 " 61,200 " " 20,400 " " 20,000 " " 10,000 " " 4,000 " " 24,000 " " 3,600 " 200 3 " 40,800 " " 20,400 " " 20,000 " " 10,000 " " 4,000 " " 24,000 " " 3,600 " 200 4 " 20,400 " " 20,400 " " 20,000 " " 10,000 " " 4,000 " " 24,000 " " 3,600 " 200 5 " 17,000 " " 3,400 " - " 10,000 " " 4,000 " " 4,000 " 600 200 6 " 13,600 " " 3,400 " - " 10,000 " " 4,000 " " 4,000 " 600 200 7 " 10,200 " " 3,400 " - " 10,000 " " 4,000 " " 4,000 " 600 200 8 " 6,800 " " 3,400 " - " 10,000 " " 4,000 " " 4,000 " 600 200 9 " 3,400 " " 3,400 " - " 10,000 " " 4,000 " " 4,000 " 600 200 10 - " 3,400 " - " 10,000 " " 4,000 " " 4,000 " 600 200 Total " $102,000 " " $80,000 " " $100,000 " " $40,000 " " $120,000 " " $18,000 " " $2,000 " (a) End-of-year carrying amount of the investment net of amortization in Column (b). (b) "Initial investment of $102,000 x (total income tax credits and other income tax benefits received during the year in Column (f))/total anticipated income tax credits and other income tax benefits over the life of the investment of $120,000)." (c) Represents the income tax credits allocated to the investor. (d) "Income tax losses, principally from depreciation, passed on to the investor." (e) Column (d) x 40% tax rate. (f) Column (c) + Column (e). (g) Column (f) - Column (b). (h) Non-income-tax-related benefits recognized in current-period pre-tax earnings when received. This represents the cash proceeds received by the investor based on the cash generated from the project. Source downloaded (UTC): 2026-09-09T23:41:35.438Z to 2026-09-09T23:41:35.438Z Record version: sha256:8ad71781a35dccd7de0e0e6072de62213b75db32b0fa331e369b8ca263499681 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-740-65: 65 Transition and Open Effective Date Information [Read section](https://asc.understandingaccounting.org/asc/323/740/#65-transition-and-open-effective-date-information) SEC content: no ##### [323-740-65-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-65-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:35.438Z to 2026-09-09T23:41:35.438Z Record version: sha256:a6ccb07b371a3b83418e824435911fcbea2cf2f23347337c452f297272464529 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph superseded on 10/26/2017 after the end of the transition period stated in Accounting Standards Update No. 2014-01, _Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects_. ##### [323-740-65-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-65-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:35.438Z to 2026-09-09T23:41:35.438Z Record version: sha256:7ce3206524e25bf6b4d37e88d12ac81f30adc9367164e0455dfed2baf72613dc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph superseded on 07/02/2026 after the end of the transition period stated in Accounting Standards Update No. 2023-02, _Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method_. Source downloaded (UTC): 2026-09-09T23:41:42.973Z to 2026-09-09T23:41:42.973Z Record version: sha256:c3facc28f074e59a578fbc60dbdd326e42dc4277222d391a41be8ac8e92feebc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-740-S00: SEC 00 Status [Read section](https://asc.understandingaccounting.org/asc/323/740/#sec-00-status) SEC content: yes ##### [323-740-S00-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-S00-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:42.973Z to 2026-09-09T23:41:42.973Z Record version: sha256:ba0a9f275381cd567e46de9b847fd81f6b641d53ae3bad140eda2a233c9031c6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
323-740-S99-1AmendedAccounting Standards Update No. 2009-0709/15/2009
323-740-S99-2AmendedAccounting Standards Update No. 2017-0301/23/2017
Source downloaded (UTC): 2026-09-09T23:41:45.795Z to 2026-09-09T23:41:45.795Z Record version: sha256:71eb21e469789eb9735d5d5904334d11e79752796ece44997929048dd4bdd6c4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-740-S25: SEC 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/323/740/#sec-25-recognition) SEC content: yes ### Qualified Affordable Housing Project Investments ##### [323-740-S25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-S25-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:45.795Z to 2026-09-09T23:41:45.795Z Record version: sha256:f3a40d2153441ffb67c168546d8f6fc47b94c0e2cfb983f7f47f72303dc20fdf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraph [323-740-S99-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-S99-2), SEC Observer Comment: Accounting for Tax Benefits Resulting from Investments in Affordable Housing Projects, for SEC Staff views on extending the application of the effective yield method policy election used in affordable housing project investment to analogous situations. Source downloaded (UTC): 2026-09-09T23:41:48.685Z to 2026-09-09T23:41:48.685Z Record version: sha256:51ff1efd04f5bf637d6324ceefe17d6ada148a68f9a858cafa3d3bbbcfdc7b01 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-740-S50: SEC 50 Disclosure [Read section](https://asc.understandingaccounting.org/asc/323/740/#sec-50-disclosure) SEC content: yes #### Income Taxes of Equity Method Investee ##### [323-740-S50-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-S50-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:48.685Z to 2026-09-09T23:41:48.685Z Record version: sha256:67e45d32bae891bcc9f8d147ad13c523b9a99df463625994ca2f1c872bd7e76f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraph [323-740-S99-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-S99-1), SAB Topic 6.I.2, for SEC Staff views on disclosures pertaining to the income taxes of an equity method investee. Source downloaded (UTC): 2026-09-09T23:41:51.330Z to 2026-09-09T23:41:51.330Z Record version: sha256:7aa35ba7a808f722b2f52293124bef97a1af671893f1ad82578b620077562b75 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-740-S99: SEC 99 SEC Materials [Read section](https://asc.understandingaccounting.org/asc/323/740/#sec-99-sec-materials) SEC content: yes #### SEC Staff Guidance ##### [323-740-S99-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-S99-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:51.330Z to 2026-09-09T23:41:51.330Z Record version: sha256:b4b210d5e74152c01864b52d3f491f1b5856eeb89cc00579c926af85569ead55 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following is the text of SAB Topic 6.I.2, Taxes of Investee Company. - Question: If a registrant records its share of earnings or losses of a 50% or less owned person on the equity basis and such person has an effective tax rate which differs by more than 5% from the applicable statutory Federal income tax rate, is a reconciliation as required by Rule 4-08(g) \[paragraph [235-10-S99-1](https://asc.understandingaccounting.org/asc/235/10/#235-10-S99-1)\] necessary? - Interpretive Response: Whenever the tax components are known and material to the investor's (registrant's) financial position or results of operations, appropriate disclosure should be made. In some instances where 50% or less owned persons are accounted for by the equity method of accounting in the financial statements of the registrant, the registrant may not know the rate at which the various components of income are taxed and it may not be practicable to provide disclosure concerning such components. - It should also be noted that it is generally necessary to disclose the aggregate dollar and per-share effect of situations where temporary tax exemptions or "tax holidays" exist, and that such disclosures are also applicable to 50% or less owned persons. Such disclosures should include a brief description of the factual circumstances and give the date on which the special tax status will terminate. See Topic 11.C \[paragraph [740-10-S99-2](https://asc.understandingaccounting.org/asc/740/10/#740-10-S99-2)\]. ### Qualified Affordable Housing Project Investments ##### [323-740-S99-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-S99-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:51.330Z to 2026-09-09T23:41:51.330Z Record version: sha256:e44e0640264f8ee07c5250cc2b6855d82571b35850e228fc43b8e4b0d66e59cc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following is the text of SEC Observer Comment: Accounting for Tax Benefits Resulting from Investments in Qualified Affordable Housing Projects. **\[The SEC Staff conformed this Comment to the guidance issued in Accounting Standards Update No. 2014-01, _Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects_.\]** - It has been observed that the decision to apply the proportional amortizationmethod of accounting is an accounting policy decision to be applied consistently to all investments in qualified affordable housing projects that meet the conditions in paragraph [323-740-25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1) rather than a decision to be applied to individual investments that qualify for use of the proportional amortization method. The SEC staff believes that it would be inappropriate to extend the proportional amortization method of accounting to situations analogous to those described in paragraph [323-740-05-3](https://asc.understandingaccounting.org/asc/323/740/#323-740-05-3). Source downloaded (UTC): 2026-09-09T23:41:55.287Z to 2026-09-09T23:42:09.804Z Record version: sha256:f86ee7d96e3ddfd00060b92647bbc15345731d356cf60432b6e8b3e801c8f9ef Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-932: Investments—Equity Method and Joint Ventures — Extractive Activities—Oil and Gas ### Machine-generated study aids ```json { "summary": "This Subtopic applies equity method and joint venture accounting to the oil and gas industry. Its core point is that joint interest (joint venture) operations, in which working interest owners retain an undivided interest in a jointly operated property run by a designated operator, are usually reflected by including the investor's proportional share of the revenues, expenses, and assets directly in its financial statements rather than by a one-line equity method presentation.", "key_points": [ "The Subtopic addresses the equity method and joint ventures in the oil and gas industry (323-932-05-1) and uses the same scope as Section 932-10-15 (323-932-15-1).", "Joint interest operations arise from an agreement among two or more working interest owners under which one party is designated operator for development and operation of the jointly owned property (323-932-25-1).", "Each working interest owner retains an undivided interest in the jointly operated property, and this direct ownership is usually reflected by direct inclusion of the investor's proportional share of expenses, revenues, and assets (323-932-25-1).", "Joint interest operations are designed to share risk, obtain capital, maximize efficiency of development and operations, and enhance recovery of reserves (323-932-25-1).", "Proportional consolidation guidance is in Subtopic 932-810 (323-932-25-2), and industry practice allows proportional accounting for investments in unincorporated legal entities (323-932-45-1; see 810-10-45-14).", "Disclosure requirements for oil and gas equity method investments are in paragraph 932-235-50-28 (323-932-50-1)." ], "categories": [ "Industry-specific", "Consolidation", "Presentation", "Disclosure" ], "audience_level": "intermediate", "student_note": "Oil and gas joint interests are one of the few settings where proportional (pro rata) presentation is accepted instead of the equity method; the common mistake is assuming every jointly controlled venture must be a one-line equity method investment, when an undivided interest in an unincorporated arrangement is typically shown line-by-line.", "related_topics": [ "932-810", "932-10", "932-235", "810-10", "323-10" ], "key_concepts": [ "joint interest operations", "working interest owner", "undivided interest", "proportional consolidation", "operator designation", "unincorporated legal entity", "equity method investment", "oil and gas industry" ] } ``` Source downloaded (UTC): 2026-09-09T23:41:55.287Z to 2026-09-09T23:41:55.287Z Record version: sha256:d53986ed1e7cebee46d44982cd7c1e3d4f1460cc6081b07723f76f09c2da7d1b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-932-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/323/932/#05-overview-and-background) SEC content: no ##### [323-932-05-1](https://asc.understandingaccounting.org/asc/323/932/#323-932-05-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:55.287Z to 2026-09-09T23:41:55.287Z Record version: sha256:556e5d57110a995b766905db320935a77e151b16b367c4fe126ebcfdb310e6b9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic addresses the equity method and joint ventures in the oil and gas industry. Source downloaded (UTC): 2026-09-09T23:41:57.656Z to 2026-09-09T23:41:57.656Z Record version: sha256:e8930ee2f9347a9d51fdc07a31858629e40eec1e705232d4b8d88160c6e16b3d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-932-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/323/932/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [323-932-15-1](https://asc.understandingaccounting.org/asc/323/932/#323-932-15-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:57.656Z to 2026-09-09T23:41:57.656Z Record version: sha256:d6863b857cce405d594ae4ce513679aadbf1d09d1251729a33a82804ee2d8f35 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 932-10-15. Source downloaded (UTC): 2026-09-09T23:42:01.705Z to 2026-09-09T23:42:01.705Z Record version: sha256:61c2207bdad02e3d2070a26600acf792c37c2a18848e5967e666dacb170a3d10 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-932-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/323/932/#25-recognition) SEC content: no ##### [323-932-25-1](https://asc.understandingaccounting.org/asc/323/932/#323-932-25-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:01.705Z to 2026-09-09T23:42:01.705Z Record version: sha256:32f3746a3a73e7f32b2472ffbcece08ee502ba8eeb3e8f816d35d6f69dfc4aa4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Joint interest (also referred to as joint venture) operations result from an agreement among two or more working interest owners whereby one party is designated as the operator for the development and operation of the jointly owned property included in the joint venture. In joint interest operations, each working interest owner retains an undivided interest in the jointly operated property. This direct ownership is usually included in the financial statements of the investor through direct inclusion of its proportional share of the expenses, revenues, and assets. Joint interest operations are designed to accomplish the objectives of sharing risk, obtaining capital, maximizing efficiency of development and operations, and enhancing the recovery of reserves. ##### [323-932-25-2](https://asc.understandingaccounting.org/asc/323/932/#323-932-25-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:01.705Z to 2026-09-09T23:42:01.705Z Record version: sha256:ff5257d5821f001edbc9295a5c0c9f7876ef45101b109b9fda9e13e611b01645 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Subtopic 932-810 for proportional consolidation. Source downloaded (UTC): 2026-09-09T23:42:03.958Z to 2026-09-09T23:42:03.958Z Record version: sha256:68a5a7728efba8c2000ac7c9460eb2c55579bc9019e5b3b9007e1141ab52dbc1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-932-45: 45 Other Presentation Matters [Read section](https://asc.understandingaccounting.org/asc/323/932/#45-other-presentation-matters) SEC content: no ##### [323-932-45-1](https://asc.understandingaccounting.org/asc/323/932/#323-932-45-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:03.958Z to 2026-09-09T23:42:03.958Z Record version: sha256:e539387db2131dc5f34e1ff6e5695ce4faad6aa16bc614f1cf1fe9c2e4d203a2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Industry practice allows investors to account for investments in unincorporated legal entities on a proportional basis (see paragraph [810-10-45-14](https://asc.understandingaccounting.org/asc/810/10/#810-10-45-14)). Source downloaded (UTC): 2026-09-09T23:42:06.242Z to 2026-09-09T23:42:06.242Z Record version: sha256:61e7f786223c0fb0a6fd30ae43308271a0ce1475d6ebb0c4a8f27c04ddfd88b5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-932-50: 50 Disclosure [Read section](https://asc.understandingaccounting.org/asc/323/932/#50-disclosure) SEC content: no ##### [323-932-50-1](https://asc.understandingaccounting.org/asc/323/932/#323-932-50-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:06.242Z to 2026-09-09T23:42:06.242Z Record version: sha256:31039218b45a9187dfd8318f860214e8105522252c0e12cf5e19f7fc8a6349a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraph [932-235-50-28](https://asc.understandingaccounting.org/asc/235/932/#235-932-50-28) for various disclosure requirements for oil and gas equity method investments. Source downloaded (UTC): 2026-09-09T23:42:12.104Z to 2026-09-09T23:42:31.673Z Record version: sha256:4efa9a0d29ed9e514925c9d765aa022b9619545b965168c2205982d0f650d1f9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-946: Investments—Equity Method and Joint Ventures — Financial Services—Investment Companies ### Machine-generated study aids ```json { "summary": "This subtopic tells investment companies how (and whether) to apply the equity method of Topic 323. The general rule is that an investment company does not use the equity method for its noncontrolling ownership interests; instead it measures those investments at fair value under Subtopic 946-320. The one exception is an investment in an operating entity that provides services to the investment company (e.g., an investment adviser or transfer agent), which is accounted for under the equity method if it otherwise qualifies.", "key_points": [ "This Subtopic addresses application of the Topic 323 equity method by an investment company (323-946-05-1) and follows the scope of Section 946-10-15 (323-946-15-1).", "Use of the equity method by an investment company generally is not appropriate; noncontrolling ownership interests are measured under Subtopic 946-320, which requires debt and equity securities to be subsequently measured at fair value (323-946-45-1).", "Exception: if the investment is in an operating entity that provides services to the investment company (for example, an investment adviser or transfer agent, see 946-10-55-5), the purpose is to obtain services rather than realize a gain on sale (323-946-45-2).", "For such a service-providing operating entity, a noncontrolling interest that otherwise qualifies for the equity method must be accounted for under the equity method rather than at fair value (323-946-45-2).", "Most of the former guidance in this subtopic (paragraphs 45-3 through 45-18, 50-1 through 50-4, and 55-1 through 55-9) was superseded by ASU 2013-08." ], "categories": [ "Subsequent measurement", "Fair value", "Industry-specific", "Financial instruments" ], "audience_level": "intermediate", "student_note": "The takeaway is a flip of the normal Topic 323 default: significant influence does not trigger the equity method for an investment company, because fair value measurement is the industry's overriding measurement principle. The common mistake is missing the narrow exception for investments in service providers (adviser, transfer agent), where the equity method is required, not optional.", "related_topics": [ "323", "946-320", "946-10", "946-810", "820" ], "key_concepts": [ "investment company", "equity method", "fair value measurement", "noncontrolling ownership interest", "operating entity providing services", "investment adviser", "transfer agent" ] } ``` Source downloaded (UTC): 2026-09-09T23:42:12.104Z to 2026-09-09T23:42:12.104Z Record version: sha256:f257828f3a7b7b4cc119537c7d43543d71a65a6718efeec2eb3914a64999ff4e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-946-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/323/946/#00-status) SEC content: no ##### [323-946-00-1](https://asc.understandingaccounting.org/asc/323/946/#323-946-00-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:12.104Z to 2026-09-09T23:42:12.104Z Record version: sha256:6bf98c0f581caad1134296018237de9487f6c34521f1f7d58c3497deb514706d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
Investment CompanySupersededAccounting Standards Update No. 2013-0806/07/2013
Related PartiesSupersededAccounting Standards Update No. 2013-0806/07/2013
UnderlyingSupersededAccounting Standards Update No. 2013-0806/07/2013
946-323-05-1AmendedAccounting Standards Update No. 2013-0806/07/2013
946-323-15-1AmendedAccounting Standards Update No. 2013-0806/07/2013
946-323-15-2SupersededAccounting Standards Update No. 2013-0806/07/2013
946-323-45-1AmendedAccounting Standards Update No. 2013-0806/07/2013
946-323-45-2AmendedAccounting Standards Update No. 2013-0806/07/2013
946-323-45-3 through 45-18SupersededAccounting Standards Update No. 2013-0806/07/2013
946-323-50-1 through 50-4SupersededAccounting Standards Update No. 2013-0806/07/2013
946-323-55-1 through 55-9SupersededAccounting Standards Update No. 2013-0806/07/2013
Source downloaded (UTC): 2026-09-09T23:42:15.242Z to 2026-09-09T23:42:15.242Z Record version: sha256:a13de4c28dac2641288a08499e974007b6a4e0e6be9739771d9f1b5d5bd6ccf5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-946-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/323/946/#05-overview-and-background) SEC content: no ##### [323-946-05-1](https://asc.understandingaccounting.org/asc/323/946/#323-946-05-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:15.242Z to 2026-09-09T23:42:15.242Z Record version: sha256:3d308d6fea140cf34cded948b5faf7907b5c26f80ea039e85cc78e89d30afd51 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides guidance on the application of the equity method of accounting in Topic 323 by an investment company. Source downloaded (UTC): 2026-09-09T23:42:17.010Z to 2026-09-09T23:42:17.010Z Record version: sha256:715bfaf1fef8fb9e18a8328bf79506ded86ce52303ba1d18b10630b563902a5e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-946-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/323/946/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [323-946-15-1](https://asc.understandingaccounting.org/asc/323/946/#323-946-15-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:17.010Z to 2026-09-09T23:42:17.010Z Record version: sha256:14b0ea950935495cd44c4531c642d5a782733e29f6e5fdce92a670edacd5eeb8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 946-10-15. ##### [323-946-15-2](https://asc.understandingaccounting.org/asc/323/946/#323-946-15-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:17.010Z to 2026-09-09T23:42:17.010Z Record version: sha256:743df043f0eed554cc282fc5de7f9965b230682a8cd8bfa9de0fbdedcf41e792 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2013-08](https://asc.understandingaccounting.org/updates/asu-2013-08/). Source downloaded (UTC): 2026-09-09T23:42:21.740Z to 2026-09-09T23:42:21.740Z Record version: sha256:c071d2c854f6e9edb8460c520ec0a63f85739d2daa2fa702ee102bf182f831bb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-946-45: 45 Other Presentation Matters [Read section](https://asc.understandingaccounting.org/asc/323/946/#45-other-presentation-matters) SEC content: no #### Application of the Equity Method ##### [323-946-45-1](https://asc.understandingaccounting.org/asc/323/946/#323-946-45-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:21.740Z to 2026-09-09T23:42:21.740Z Record version: sha256:c9d94cfd6125ec860fa87c7fa6c31ac30b7965206072cb40de4d691aec3da890 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Except as discussed in the following paragraph, use of the equity method of accounting by an investment company is not appropriate. Rather, those noncontrolling ownership interests held by an investment company shall be measured in accordance with guidance in Subtopic 946-320, which requires investments in debt and equity securities to be subsequently measured at [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."). ##### [323-946-45-2](https://asc.understandingaccounting.org/asc/323/946/#323-946-45-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:21.740Z to 2026-09-09T23:42:21.740Z Record version: sha256:10e8e81febea91ff4441f6a884ddde0b02fb396546b80a04f3e2846f5782da41 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An exception to the general principle in the preceding paragraph occurs if the investment company has an investment in an operating entity that provides services to the investment company, for example, an investment adviser or transfer agent (see paragraph [946-10-55-5](https://asc.understandingaccounting.org/asc/946/10/#946-10-55-5)). In those cases, the purpose of the investment is to provide services to the investment company rather than to realize a gain on the sale of the investment. If an investment company holds a noncontrolling ownership interest in such an operating entity that otherwise qualifies for use of the equity method of accounting, the investment company should use the equity method of accounting for that investment, rather than measuring the investment at fair value. ##### [323-946-45-3](https://asc.understandingaccounting.org/asc/323/946/#323-946-45-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:21.740Z to 2026-09-09T23:42:21.740Z Record version: sha256:60a73a510798afe02479d8bd7d7f28ae90894e9c04f0e12cd2b893ba5b794d0f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraphs 946-323-45-3 through 45-18 superseded by Accounting Standards Update No. 2013-08](https://asc.understandingaccounting.org/asc/323/946/#323-946-45-3). Source downloaded (UTC): 2026-09-09T23:42:25.281Z to 2026-09-09T23:42:25.281Z Record version: sha256:a73d2ad9f4b4da62a6b65402e0826ee5789feffbfe1b2c1eafeec439ca9a170c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-946-50: 50 Disclosure [Read section](https://asc.understandingaccounting.org/asc/323/946/#50-disclosure) SEC content: no ##### [323-946-50-1](https://asc.understandingaccounting.org/asc/323/946/#323-946-50-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:25.281Z to 2026-09-09T23:42:25.281Z Record version: sha256:ad6f40aeb8650f5941db2e61ef97b71817375d63df409941e41ac758aec55f6b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraphs 946-323-50-1 through 50-4 superseded by Accounting Standards Update No. 2013-08](https://asc.understandingaccounting.org/asc/323/946/#323-946-50-1). Source downloaded (UTC): 2026-09-09T23:42:29.068Z to 2026-09-09T23:42:29.068Z Record version: sha256:e8bd077961be11855aff7aa12f714c388b455176bf0f64569977f97f240e9b7f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-946-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/323/946/#55-implementation-guidance-and-illustrations) SEC content: no ##### [323-946-55-1](https://asc.understandingaccounting.org/asc/323/946/#323-946-55-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:29.068Z to 2026-09-09T23:42:29.068Z Record version: sha256:443998c75b5fb332921cac580a67829426fddb8e8b14547cb4064408b9fbc663 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraphs 946-323-55-1 through 55-9 superseded by Accounting Standards Update No. 2013-08](https://asc.understandingaccounting.org/asc/323/946/#323-946-55-1). Source downloaded (UTC): 2026-09-09T23:42:31.673Z to 2026-09-09T23:42:31.673Z Record version: sha256:26615b9eccf6a960ccaf1cb5a64cc61326f5e0889e58530646ff2ea112109882 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-946-65: 65 Transition and Open Effective Date Information [Read section](https://asc.understandingaccounting.org/asc/323/946/#65-transition-and-open-effective-date-information) SEC content: no ##### [323-946-65-1](https://asc.understandingaccounting.org/asc/323/946/#323-946-65-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:31.673Z to 2026-09-09T23:42:31.673Z Record version: sha256:abcc6847a3813f56d344b600ced35bd7a2decd9392c4445c51ae9ea3a7b14230 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). Source downloaded (UTC): 2026-09-09T23:42:35.809Z to 2026-09-09T23:43:01.427Z Record version: sha256:42f9f5282f59bc0332154447990b59d2069d4c56e0b2d9fba678defb88a4a63b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-970: Investments—Equity Method and Joint Ventures — Real Estate—General ### Machine-generated study aids ```json { "summary": "ASC 323-970 (also cited as 970-323) governs how an investor accounts for interests in real estate ventures—corporate joint ventures, general partnerships, limited partnerships, and undivided interests. The general rule is one-line equity method presentation for noncontrolling investors (pro rata consolidation is prohibited except under 810-10-45-14), consolidation principles if the investor controls the venture, and Topic 321 if the interest is so minor that the investor has virtually no influence. It also prescribes initial measurement of contributed cash or real estate (via Subtopic 610-20 / 360-10-40-3A through 40-3C), elimination of intra-entity profit, and rules for recognizing losses in excess of the investment.", "key_points": [ "Noncontrolling investors in real estate general partnerships, and generally limited partners, account for their investments under the equity method using Topic 323 as a guide (323-970-25-3; 25-6); an interest so minor that the investor has virtually no influence is accounted for under Topic 321 (323-970-25-6).", "The one-line equity method must be used in both the balance sheet and income statement; pro rata consolidation is not appropriate except in the limited circumstances in paragraph 810-10-45-14 (323-970-25-4), and undivided interests subject to joint control are presented like investments in noncontrolled partnerships (323-970-25-12).", "A controlling investor—including a limited partner controlling through kick-out rights under 810-10-15-8A—applies subsidiary/consolidation principles in Topic 810 rather than joint venture guidance (323-970-25-8; 25-10).", "Investors contributing cash record the investment at cash contributed (323-970-30-2); an investor contributing real estate records the investment at fair value when the real estate is derecognized, applying 360-10-40-3A through 40-3C and Subtopic 610-20, measuring the retained interest at fair value under 610-20-32-4 (323-970-30-3; 30-6).", "An investor may not record income for its equity in the venture's profit on a sale of real estate to that investor; that share reduces the carrying amount of the purchased real estate and is recognized as the asset is depreciated or sold to a third party (323-970-30-7), and intra-entity profit is eliminated in relation to the investor's noncontrolling interest, with full elimination if the investor controls the investee (323-970-35-14).", "Losses in excess of the investment (including loans and advances) must be recorded—and reported as a liability—if the investor is liable as guarantor or general partner or is otherwise committed to provide support, or when imminent return to profitable operations appears assured (323-970-35-3 through 35-6); if losses are not recognized, the equity method resumes only after subsequent income equals the unrecognized losses (323-970-35-7).", "Investors must absorb losses allocable to other investors when it is probable those investors cannot bear them, applying Subtopic 450-20 loss contingency principles (323-970-35-8; 35-10); profit and loss allocation ratios are ignored if cash and liquidating distributions are determined on another basis—substance governs (323-970-35-17)." ], "categories": [ "Recognition", "Initial measurement", "Subsequent measurement", "Consolidation" ], "audience_level": "intermediate", "student_note": "This subtopic is the classic exam trap for real estate partnerships: students often assume a limited partner or undivided-interest holder can report its pro rata share of assets and liabilities, but ASC 323-970-25-4 and 25-12 require one-line equity method presentation, and losses can exceed the investment (recorded as a liability) when the investor is a guarantor or general partner.", "related_topics": [ "323-10", "970-810", "610-20", "360-10", "810-10", "321-10" ], "key_concepts": [ "real estate venture", "equity method", "one-line presentation", "pro rata consolidation", "undivided interests", "losses in excess of investment", "intra-entity profit elimination", "contribution of real estate" ] } ``` Source downloaded (UTC): 2026-09-09T23:42:35.809Z to 2026-09-09T23:42:35.809Z Record version: sha256:474c8dc0afb1820a0d25f18c8576358e4023ad84d19281698236e3d2bfa2f90a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-970-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/323/970/#00-status) SEC content: no ##### [323-970-00-1](https://asc.understandingaccounting.org/asc/323/970/#323-970-00-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:35.809Z to 2026-09-09T23:42:35.809Z Record version: sha256:c15a103d20ebea462f6f61f170df1bc1dae11d8cca3bf8882031c52c5d4500e7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
Corporate Joint VentureAmendedAccounting Standards Update No. 2010-0802/02/2010
Kick-Out Rights (Voting Interest Entity definition)AddedAccounting Standards Update No. 2015-0202/18/2015
Noncontrolling InterestAddedAccounting Standards Update No. 2017-0502/22/2017
970-323-05-4AmendedAccounting Standards Update No. 2025-1212/17/2025
970-323-15-2AmendedAccounting Standards Update No. 2012-0410/01/2012
970-323-25-5AmendedAccounting Standards Update No. 2015-0202/18/2015
970-323-25-6AmendedAccounting Standards Update No. 2016-0101/05/2016
970-323-25-7SupersededAccounting Standards Update No. 2016-0101/05/2016
970-323-25-8AmendedAccounting Standards Update No. 2016-0101/05/2016
970-323-25-8AmendedAccounting Standards Update No. 2015-0202/18/2015
970-323-25-8AmendedAccounting Standards Update No. 2009-0207/01/2009
970-323-25-11AmendedAccounting Standards Update No. 2016-0101/05/2016
970-323-25-11AmendedAccounting Standards Update No. 2010-0802/02/2010
970-323-30-3AmendedAccounting Standards Update No. 2017-0502/22/2017
970-323-30-3AmendedAccounting Standards Update No. 2014-0905/28/2014
970-323-30-4SupersededAccounting Standards Update No. 2017-0502/22/2017
970-323-30-4AmendedAccounting Standards Update No. 2014-0905/28/2014
970-323-30-5SupersededAccounting Standards Update No. 2017-0502/22/2017
970-323-30-6AmendedAccounting Standards Update No. 2017-0502/22/2017
970-323-30-6AmendedAccounting Standards Update No. 2014-0905/28/2014
970-323-35-14AmendedAccounting Standards Update No. 2017-0502/22/2017
970-323-35-15AmendedAccounting Standards Update No. 2017-0502/22/2017
970-323-40-1AmendedMaintenance Update 2021-02 (PDF)01/19/2021
970-323-40-1AmendedAccounting Standards Update No. 2017-0502/22/2017
970-323-40-1AmendedAccounting Standards Update No. 2014-0905/28/2014
Source downloaded (UTC): 2026-09-09T23:42:39.496Z to 2026-09-09T23:42:39.496Z Record version: sha256:d828ca2c540cdf8c26630141ec2191b60bba22f4b760f377b7f14ddbca585c3d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-970-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/323/970/#05-overview-and-background) SEC content: no ##### [323-970-05-1](https://asc.understandingaccounting.org/asc/323/970/#323-970-05-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:39.496Z to 2026-09-09T23:42:39.496Z Record version: sha256:372c7a0f0a74ff49e9df65e97c02666b5441c841c7dadcf7631dad4ab43f39a6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides accounting guidance on various forms of real estate ownership. In addition it addresses investor accounting for certain transactions with a [real estate venture](https://asc.understandingaccounting.org/glossary/r/#real-estate-venture "Any of the following: a joint venture, a general partnership, a limited partnership, and an undivided interest."). ##### [323-970-05-2](https://asc.understandingaccounting.org/asc/323/970/#323-970-05-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:39.496Z to 2026-09-09T23:42:39.496Z Record version: sha256:c4111e57ceae3e29c9ceb2b20518bd1a754848d8af5fd5c8402b640374d0d3dd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Ownership of real estate or real estate development projects by two or more entities may take several forms. The most common forms are a [corporate joint venture](https://asc.understandingaccounting.org/glossary/c/#corporate-joint-venture "A corporation owned and operated by a small group of entities (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group. A government may also be a member of the group. The purpose of a corporate joint venture frequently is to share risks and rewards in developing a new market, product or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities. A corporate joint venture also usually provides an arrangement under which each joint venturer may participate, directly or indirectly, in the overall management of the joint venture. Joint venturers thus have an interest or relationship other than as passive investors. An entity that is a subsidiary of one of the joint venturers is not a corporate joint venture. The ownership of a corporate joint venture seldom changes, and its stock is usually not traded publicly. A noncontrolling interest held by public ownership, however, does not preclude a corporation from being a corporate joint venture."), a [general partnership](https://asc.understandingaccounting.org/glossary/g/#general-partnership "An association in which each partner has unlimited liability."), a [limited partnership](https://asc.understandingaccounting.org/glossary/l/#limited-partnership "An association in which one or more general partners have unlimited liability and one or more partners have limited liability. A limited partnership is usually managed by the general partner or partners, subject to limitations, if any, imposed by the partnership agreement."), or an [undivided interest](https://asc.understandingaccounting.org/glossary/u/#undivided-interest "An ownership arrangement in which two or more parties jointly own property, and title is held individually to the extent of each party's interest."). ##### [323-970-05-3](https://asc.understandingaccounting.org/asc/323/970/#323-970-05-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:39.496Z to 2026-09-09T23:42:39.496Z Record version: sha256:6892ed221d5bf6014ddfce480af088adc678bdc6c04c57e73ca95475ecd401a8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Subtopic, the terms venture and real estate venture apply to all of these ownership arrangements described above. These forms of ownership differ in legal form and economic substance. ##### [323-970-05-4](https://asc.understandingaccounting.org/asc/323/970/#323-970-05-4) Pending content: yes Source downloaded (UTC): 2026-09-09T23:42:39.496Z to 2026-09-09T23:42:39.496Z Record version: sha256:d6b812d77b9081d4c9f592897c8479990b395c8d63086634585bd31a3b11eb20 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Subtopic 323-740 for guidance on accounting for qualified affordable housing investments. Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [105-10-65-10](https://asc.understandingaccounting.org/asc/105/10/#105-10-65-10)See Subtopic 323-740 for guidance on the use of the proportional amortization method to investments made primarily for the purpose of receiving income tax credits and other income tax benefits. ##### [323-970-05-5](https://asc.understandingaccounting.org/asc/323/970/#323-970-05-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:39.496Z to 2026-09-09T23:42:39.496Z Record version: sha256:1613d7e26c0b1c70048f61c5ac24b9c04726044b72b978aaccc2d129885c25fd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The [Acquisition, Development, and Construction Subsection](https://asc.understandingaccounting.org/asc/310/10/#15-scope-and-scope-exceptions) of Section 310-10-15 addresses [acquisition, development, and construction arrangements](https://asc.understandingaccounting.org/glossary/a/#acquisition-development-and-construction-arrangements "Acquisition, development, or construction arrangements, in which a lender, usually a financial institution, participates in expected residual profit from the sale or refinancing of property.") in which the lender participates in expected residual profit. The [Acquisition, Development, and Construction Subsection](https://asc.understandingaccounting.org/asc/310/10/#25-recognition) of Section 310-10-25 provides criteria for distinguishing between such arrangements that shall be accounted for as loans or real estate joint ventures, and provides accounting guidance for circumstances in which such arrangements are required to be accounted for as real estate joint ventures. Source downloaded (UTC): 2026-09-09T23:42:43.078Z to 2026-09-09T23:42:43.078Z Record version: sha256:73377914e88d5067a1752aff77f12f4b2188b3e34c67b1605bbbe6187daf4cd7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-970-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/323/970/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [323-970-15-1](https://asc.understandingaccounting.org/asc/323/970/#323-970-15-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:43.078Z to 2026-09-09T23:42:43.078Z Record version: sha256:f2e65a0a2025ce4dfdeed8b45fe10e0beb91621bf16e391a81368277fec9097c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 970-10-15, with specific entity exceptions noted below. #### Entities ##### [323-970-15-2](https://asc.understandingaccounting.org/asc/323/970/#323-970-15-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:43.078Z to 2026-09-09T23:42:43.078Z Record version: sha256:89c5e70f31518e9cc13175f1c67f0b868fc5ab6dd4d25168ef87773110547d73 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Subtopic does not apply to the following entities: 1. a Regulated investment entities and other entities that are required to account for investments at fair value. ##### [323-970-15-3](https://asc.understandingaccounting.org/asc/323/970/#323-970-15-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:43.078Z to 2026-09-09T23:42:43.078Z Record version: sha256:45200f7993f9718c171c30dff9012d92a78d7c954eeed0a645e081cc68721cfc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Sections 946-10-15 and 946-323-15 for applicability to unincorporated joint ventures and non-regulated investment entities. Source downloaded (UTC): 2026-09-09T23:42:49.098Z to 2026-09-09T23:42:49.098Z Record version: sha256:e5d5789cab4deaf42e4cd5d0b7d1723b67f39928fa3ec450bae0c5bc7927d2ca Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-970-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/323/970/#25-recognition) SEC content: no ##### [323-970-25-1](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:49.098Z to 2026-09-09T23:42:49.098Z Record version: sha256:895a9dcfa68515a85e7332a9719242be5227207982f2821e306b42c3060dab4c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). #### General Partnerships ##### [323-970-25-2](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:49.098Z to 2026-09-09T23:42:49.098Z Record version: sha256:2ce708ad6258efb597da0553542531678657dbce7b7f8563f229069ddcb9c89c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [970-810-25-2](https://asc.understandingaccounting.org/asc/810/970/#810-970-25-2) states that a noncontrolling investor in a [general partnership](https://asc.understandingaccounting.org/glossary/g/#general-partnership "An association in which each partner has unlimited liability.") shall account for its investment by the equity method and should be guided by the provisions of Topic 323. ##### [323-970-25-3](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:49.098Z to 2026-09-09T23:42:49.098Z Record version: sha256:3ad17f421ec9c797aa81dd9691fcb7504b19d7a2c4352c58a074e53b0d73b979 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Many provisions of Topic 323 are appropriate in accounting for investments in certain unincorporated entities. The principal difference, aside from income tax considerations, between corporate joint ventures and general partnerships is that the individual investors in general partnerships usually assume joint and several liability. The equity method, however, enables noncontrolling investors in general partnerships to reflect the underlying nature of their investments in those ventures as well as it does for investors in corporate joint ventures. Accordingly, investments in noncontrolled real estate general partnerships shall be accounted for and reported under the equity method. ##### [323-970-25-4](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:49.098Z to 2026-09-09T23:42:49.098Z Record version: sha256:e3b292f44e1ce2c9e2e5ddb2f2bbb78b9841c3918f33fd385ef88b4680919836 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall apply the one-line equity method of presentation in both the balance sheet and the statement of income. Pro rata consolidation is not appropriate except in the limited circumstances described in paragraph [810-10-45-14](https://asc.understandingaccounting.org/asc/810/10/#810-10-45-14). Topic 323 shall be used as a guide in applying the equity method. #### Limited Partnerships ##### [323-970-25-5](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:49.098Z to 2026-09-09T23:42:49.098Z Record version: sha256:55610b6deb026c059a27b12d583aa35fa580ab857053b80904012e467bc115ae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For guidance on determining whether a general partner or a limited partner shall consolidate a [limited partnership](https://asc.understandingaccounting.org/glossary/l/#limited-partnership "An association in which one or more general partners have unlimited liability and one or more partners have limited liability. A limited partnership is usually managed by the general partner or partners, subject to limitations, if any, imposed by the partnership agreement.") or apply the equity method of accounting to its interests in the limited partnership, see paragraph [970-810-25-3](https://asc.understandingaccounting.org/asc/810/970/#810-970-25-3). ##### [323-970-25-6](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:49.098Z to 2026-09-09T23:42:49.098Z Record version: sha256:be4a31a965249e427671d16f38e01d405aeb5b324b87aad548b65e951172bfa8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The equity method of accounting for investments in general partnerships is generally appropriate for accounting by limited partners for their investments in limited partnerships. A limited partner's interest may be so minor that the limited partner may have virtually no influence over partnership operating and financial policies. Such a limited partner is, in substance, in the same position with respect to the investment as an investor that owns a minor common stock interest in a corporation, and, accordingly, the limited partner should account for its investment in accordance with Topic 321. ##### [323-970-25-7](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:49.098Z to 2026-09-09T23:42:49.098Z Record version: sha256:012e012cb5c8819d00eb97c09da0f75312ea412996bf226f36b0526df19cbb36 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). ##### [323-970-25-8](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:49.098Z to 2026-09-09T23:42:49.098Z Record version: sha256:206cbfce1dc8d7b9805e2fefd3a9b94908832ab2cbbb20bc360241d663b632f7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the substance of the partnership arrangement is such that the general partners are not in control of the major operating and financial policies of the partnership, a limited partner may be in control. An example could be a limited partner holding over 50 percent of the limited partnership's [kick-out rights](https://asc.understandingaccounting.org/glossary/k/#kick-out-rights-voting-interest-entity-definition "The rights underlying the limited partner's or partners' ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners without cause.") through voting interests in accordance with paragraph [810-10-15-8A](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-8A). A controlling limited partner shall be guided in accounting for its investment by the principles for investments in subsidiaries in Topic 810 on consolidation. Noncontrolling limited partners shall account for their investments by the equity method and shall be guided by the provisions of Topic 323, as discussed in the guidance beginning in paragraph [970-323-25-5](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-5), or by the guidance in Topic 321. #### Corporate Joint Ventures ##### [323-970-25-9](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-9) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:49.098Z to 2026-09-09T23:42:49.098Z Record version: sha256:87633b02349dfd574d1a390a1a34ddeb6688da14808f7e08d72a8635e5f05024 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Topic 323 provides the standards for use of the equity method for [corporate joint ventures](https://asc.understandingaccounting.org/glossary/c/#corporate-joint-venture "A corporation owned and operated by a small group of entities (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group. A government may also be a member of the group. The purpose of a corporate joint venture frequently is to share risks and rewards in developing a new market, product or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities. A corporate joint venture also usually provides an arrangement under which each joint venturer may participate, directly or indirectly, in the overall management of the joint venture. Joint venturers thus have an interest or relationship other than as passive investors. An entity that is a subsidiary of one of the joint venturers is not a corporate joint venture. The ownership of a corporate joint venture seldom changes, and its stock is usually not traded publicly. A noncontrolling interest held by public ownership, however, does not preclude a corporation from being a corporate joint venture.") and includes guidance for applying that method in the financial statements of the investor. That Topic applies to corporate joint ventures created to own or operate real estate projects. ##### [323-970-25-10](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-10) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:49.098Z to 2026-09-09T23:42:49.098Z Record version: sha256:052064a79b6b393265ce05ca295194f48ff7bf6cdc5bc466d6f43fa337dafa09 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Accordingly, an investment in a corporate subsidiary that is a [real estate venture](https://asc.understandingaccounting.org/glossary/r/#real-estate-venture "Any of the following: a joint venture, a general partnership, a limited partnership, and an undivided interest.") shall be accounted for by the investor-parent using the principles applicable to investments in subsidiaries rather than those applicable to investments in corporate joint ventures. ##### [323-970-25-11](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-11) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:49.098Z to 2026-09-09T23:42:49.098Z Record version: sha256:232986178f1ebbd7d74129bbef7d79b85a39de5f5271c758b905b6550c4dab8b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Noncontrolling shareholders in such a real estate venture shall account for their investment using the principles applicable to investments in common stock set forth in Topic 321 or 323. #### Undivided Interests ##### [323-970-25-12](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-12) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:49.098Z to 2026-09-09T23:42:49.098Z Record version: sha256:ccd31422c8816f64dfd3298982428afd57bcd9ed402b566300837bc1d84204c7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If real property owned by undivided interests is subject to [joint control](https://asc.understandingaccounting.org/glossary/j/#joint-control "Occurs if decisions regarding the financing, development, sale, or operations require the approval of two or more of the owners.") by the owners, the investor-venturers shall not present their investments by accounting for their pro rata share of the assets, liabilities, revenues, and expenses of the ventures. Most real estate ventures with ownership in the form of undivided interests are subject to some level of joint control. Accordingly, such investments shall be presented in the same manner as investments in noncontrolled partnerships. #### Acquisition, Development, and Construction Arrangements ##### [323-970-25-13](https://asc.understandingaccounting.org/asc/323/970/#323-970-25-13) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:49.098Z to 2026-09-09T23:42:49.098Z Record version: sha256:5418c791e004aefbd2ab79d31699e144320e12eb01df379734317cd5e631f084 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See the [Acquisition, Development, and Construction Subsection](https://asc.understandingaccounting.org/asc/310/10/#25-recognition) of Section 310-10-25 for a discussion of when [acquisition, development, and construction arrangements](https://asc.understandingaccounting.org/glossary/a/#acquisition-development-and-construction-arrangements "Acquisition, development, or construction arrangements, in which a lender, usually a financial institution, participates in expected residual profit from the sale or refinancing of property.") are required to be accounted for as a real estate joint venture rather than a loan. In those circumstances, the [Acquisition, Development, and Construction Subsection](https://asc.understandingaccounting.org/asc/310/10/#35-subsequent-measurement) of Section 310-10-35, and the [Acquisition, Development, and Construction Subsection](https://asc.understandingaccounting.org/asc/310/10/#40-derecognition) of Section 310-10-40 provide further guidance for accounting for such arrangements. Source downloaded (UTC): 2026-09-09T23:42:52.756Z to 2026-09-09T23:42:52.756Z Record version: sha256:28a6194eb31345632e7fea605c7690ea4f2286c17739c1c72ca74d47276c614f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-970-30: 30 Initial Measurement [Read section](https://asc.understandingaccounting.org/asc/323/970/#30-initial-measurement) SEC content: no #### Accounting by the Investor for Certain Transactions with a Real Estate Venture ##### [323-970-30-1](https://asc.understandingaccounting.org/asc/323/970/#323-970-30-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:52.756Z to 2026-09-09T23:42:52.756Z Record version: sha256:af07ff6121c10c3aa6f1d501b20326c939ad0123b8d7d9a902f9fa529af9c36b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Section applies to investments accounted for by the equity method. ##### [323-970-30-2](https://asc.understandingaccounting.org/asc/323/970/#323-970-30-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:52.756Z to 2026-09-09T23:42:52.756Z Record version: sha256:eab64f968b7ab7184f93dcbf8332594826839e5b1f94e8bee20a45acf5151bda Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If all investors contribute cash at the formation of the [real estate venture](https://asc.understandingaccounting.org/glossary/r/#real-estate-venture "Any of the following: a joint venture, a general partnership, a limited partnership, and an undivided interest."), each investor shall record its investment at the amount of the cash contributed. ##### [323-970-30-3](https://asc.understandingaccounting.org/asc/323/970/#323-970-30-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:52.756Z to 2026-09-09T23:42:52.756Z Record version: sha256:71f538c4c36ef8c9cbbb3ae48de001d170e099ee38a30f4e47558f77d1964298 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investor that contributes real estate to the capital of a real estate venture generally should record its investment in the venture at fair value when the real estate is derecognized, regardless of whether the other investors contribute cash, property, or services. The transaction shall be accounted for in accordance with the guidance in paragraphs [360-10-40-3A through 40-3C](https://asc.understandingaccounting.org/asc/360/10/#360-10-40-3A) . Some transactions are sales of an ownership interest that result in an entity being an investor in a real estate venture. An example of such a transaction includes one in which investor A contributes real estate with a fair value of $2,000 to a venture and investor B contributes cash in the amount of $1,000. The real estate is not considered a business or nonprofit activity and, therefore, is within the scope of Subtopic 610-20 on gains and losses from the derecognition of nonfinancial assets. Investor A immediately withdraws the cash contributed by investor B and, following such contributions and withdrawals, each investor has a 50 percent interest in the venture (the only asset of which is the real estate). Assuming investor A does not have a controlling financial interest in the venture, investor A applies the guidance in paragraphs [610-20-25-5](https://asc.understandingaccounting.org/asc/610/20/#610-20-25-5) and [610-20-25-7](https://asc.understandingaccounting.org/asc/610/20/#610-20-25-7). When investor A meets the criteria to derecognize the property, investor A measures its retained ownership interest at fair value consistent with the guidance in paragraph [610-20-32-4](https://asc.understandingaccounting.org/asc/610/20/#610-20-32-4) and includes that amount in the consideration used in calculating the gain or loss on derecognition of the property. ##### [323-970-30-4](https://asc.understandingaccounting.org/asc/323/970/#323-970-30-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:52.756Z to 2026-09-09T23:42:52.756Z Record version: sha256:16132d0e7557191aac66f4277f33893154017e9c982e84ec5ddae2eb79a397cd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-05](https://asc.understandingaccounting.org/updates/asu-2017-05/). ##### [323-970-30-5](https://asc.understandingaccounting.org/asc/323/970/#323-970-30-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:52.756Z to 2026-09-09T23:42:52.756Z Record version: sha256:154ec70feeddc03ba6424d89ce049676cb2a48fab5f7ef1bbec0d77269eac7f4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-05](https://asc.understandingaccounting.org/updates/asu-2017-05/). ##### [323-970-30-6](https://asc.understandingaccounting.org/asc/323/970/#323-970-30-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:52.756Z to 2026-09-09T23:42:52.756Z Record version: sha256:abcd33c82a56efb722ce4ac578a7059a588a9074821095d523b5f9cf3baffd00 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contribution of real property or an intangible to a partnership or joint venture shall be accounted for in accordance with Subtopic 610-20. The contribution of services or real estate [syndication activities](https://asc.understandingaccounting.org/glossary/s/#syndication-activities "Efforts to directly or indirectly sponsor the formation of entities that acquire interests in real estate by raising funds from investors. As consideration for their investments, the investors receive ownership or other financial interests in the sponsored entities. All general partners in syndicated partnerships are deemed to perform syndication activities.") in which the syndicators receive or retain partnership interests are accounted for in accordance with the guidance in Topic 606 on revenue from contracts with customers. ##### [323-970-30-7](https://asc.understandingaccounting.org/asc/323/970/#323-970-30-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:52.756Z to 2026-09-09T23:42:52.756Z Record version: sha256:13ae08b55026e15762f8137eac327410a6824d254ba0e63709907e5a8251bf13 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investor shall not record as income its equity in the venture's profit from a sale of real estate to that investor; the investor's share of such profit shall be recorded as a reduction in the carrying amount of the purchased real estate and recognized as income on a pro rata basis as the real estate is depreciated or when it is sold to a third party. Similarly, if a venture performs services for an investor and the cost of those services is capitalized by the investor, the investor's share of the venture's profit in the transaction shall be recorded as a reduction in the carrying amount of the capitalized cost. Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:a110aa2b5e36825b24458110950360a6b8f58438a5e8c189a54482a8951d88d0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-970-35: 35 Subsequent Measurement [Read section](https://asc.understandingaccounting.org/asc/323/970/#35-subsequent-measurement) SEC content: no #### Applying the Equity Method ##### [323-970-35-1](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:a6e4ba2f9102289b25cb1e6870b45bc69966b0578deb251a94bd17db5644d0cd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Section applies to investments accounted for by the equity method. ##### [323-970-35-2](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:0f77b51fc385f0358dea7755d33226673558e2b3b535f43d750608182548629d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investors shall record their share of the real estate venture's losses, determined in conformity with generally accepted accounting principles (GAAP), without regard to unrealized increases in the estimated fair value of the venture's assets. ##### [323-970-35-3](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:19d011c2194a437c3e084637ed11ddefb0354b3d7e5790959ff2fc8a2be0a994 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investor that is liable for the obligations of the venture or is otherwise committed to provide additional financial support to the venture shall record its equity in [real estate venture](https://asc.understandingaccounting.org/glossary/r/#real-estate-venture "Any of the following: a joint venture, a general partnership, a limited partnership, and an undivided interest.") losses in excess of its investment, including loans and advances. ##### [323-970-35-4](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:da414a4f1893a780ccd74c08d275072c7ee6df8a29e7840b46fab6120fd9740c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following are examples of such circumstances: 1. a The investor has a legal obligation as a guarantor or general partner. 2. b The investor has indicated a commitment, based on considerations such as business reputation, intra-entity relationships, or credit standing, to provide additional financial support. Such a commitment might be indicated by previous support provided by the investor or statements by the investor to other investors or third parties of the investor's intention to provide support. ##### [323-970-35-5](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:c4aa6464a6eca0e68d24eef707c58f88234ea448826c0c92d3fed66b05435fe1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investor, though not liable or otherwise committed to provide additional financial support, shall provide for losses in excess of investment when the imminent return to profitable operations by the venture appears to be assured. For example, a material nonrecurring loss of an isolated nature, or start-up losses, may reduce an investment below zero though the underlying profitable pattern of an investee is unimpaired. ##### [323-970-35-6](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:d195916cc4c30bec4805b412fc975909728755548abc8ac9a8197b9ad5adf0b1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investor in a real estate venture shall report its recorded share of losses in excess of its investment, including loans and advances, as a liability in its financial statements. ##### [323-970-35-7](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:f90dd488a4579f84993c8e624e008e144f4e17ad0bf95c830045bc7dc978bbdc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an investor does not recognize venture losses in excess of its investment, loans, and advances and the venture subsequently reports net income, the investor shall resume applying the equity method only after its share of such net income equals the share of net losses not recognized during the period in which equity accounting was suspended. ##### [323-970-35-8](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:e47e1da5229316b0debb5aacdbd519b83f698f47665b391b57b8f812ffb0fb8e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If it is probable that one or more investors cannot bear their share of losses, the remaining investors shall record their proportionate shares of venture losses otherwise allocable to investors considered unable to bear their share of losses. This does not apply for real property jointly owned and operated as undivided interests in assets if the claims or liens of investors' creditors are limited to investors' respective interests in such property. ##### [323-970-35-9](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-9) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:9175a845712645cdb45acb51ec52fca9dbfdbe98099d8932c1ef50eb56929f0c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When the venture subsequently reports income, those remaining investors shall record their proportionate share of the venture's net income otherwise allocable to investors considered unable to bear their share of losses until such income equals the excess losses they previously recorded. An investor who is deemed by other investors to be unable to bear its share of losses shall continue to record its contractual share of losses unless it is relieved from the obligation to make payment by agreement or operation of law. ##### [323-970-35-10](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-10) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:f718b3c2639cd8022845bf27d362dd314c54264f089d29cd175661be773486bd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The accounting by an investor for losses otherwise allocable to other investors shall be governed by the provisions of Subtopic 450-20 relating to loss contingencies. Accordingly, the investor shall record a proportionate share of the losses otherwise allocable to other investors if it is probable that they will not bear their share. In this connection, each investor shall look primarily to the fair value of the other investors' interests in the venture and the extent to which the venture's debt is nonrecourse in evaluating their ability and willingness to bear their allocable share of losses. An investor may not be able to apply the general rule to an investment in an [undivided interest](https://asc.understandingaccounting.org/glossary/u/#undivided-interest "An ownership arrangement in which two or more parties jointly own property, and title is held individually to the extent of each party's interest.") because the extent to which the interests of other investors are encumbered by liens may not be known. However, there may be satisfactory alternative evidence of an ability and willingness of other investors to bear their allocable share of losses. Such evidence might be, for example, that those investors previously made loans or contributions to support cash deficits, possess satisfactory financial standing (as may be evidenced by satisfactory credit ratings), or have provided adequately collateralized guarantees. ##### [323-970-35-11](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-11) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:d69b59daa5b7d3c8479189c4f3742e55b235b94101af13877896d72fdc75178a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Section 323-10-35 for additional guidance regarding accounting by equity method investor for investee losses when the investor has both loans and equity interest. ##### [323-970-35-12](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-12) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:efc050c8de2bc3bfd499324e5ba0544e7381b7b9755e1fd883ab9ae7bca51a8b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A loss in value of an investment other than a temporary decline shall be recognized. Such a loss in value may be indicated, for example, by a decision by other investors to cease providing support or reduce their financial commitment to the venture. ##### [323-970-35-13](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-13) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:3ac47078f554449a77ef0faf15da05ea474ede547a83c35471494202d6ccde4a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a transaction with a real estate venture confirms that there has been a loss in the value of the asset sold that is other than temporary and that has not been recognized previously, the loss shall be recognized on the books of the transferor. ##### [323-970-35-14](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-14) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:083728146db6c9323fd55c8ed5ffcae62dc5605ed907ae88e39289b3a224f7b3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Intra-entity profit shall be eliminated by the investor in relation to the investor's [noncontrolling interest](https://asc.understandingaccounting.org/glossary/n/#noncontrolling-interest "The portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. A noncontrolling interest is sometimes called a minority interest.") in the investee, unless one of the exceptions in paragraph [323-10-35-7](https://asc.understandingaccounting.org/asc/323/10/#323-10-35-7) applies. An investor that controls the investee and enters into a transaction with the investee shall eliminate all of the interentity profit on assets remaining within the group. (See Subsection 323-30-35 for accounting guidance concerning partnership ownership interest.) ##### [323-970-35-15](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-15) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:5eb64962d6f3fbfe865e837d7d0eeddd3c5a13810917eced808c8a23496aa603 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A sale of property in which the seller holds or acquires a noncontrolling interest in the buyer shall be evaluated in accordance with the guidance in paragraphs [360-10-40-3A through 40-3B](https://asc.understandingaccounting.org/asc/360/10/#360-10-40-3A) . No profit shall be recognized if the seller controls the buyer. ##### [323-970-35-16](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-16) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:ae1bed15b583315f6041773ab7cfa3bd0b53c357c9ec4bcefd9268d351ad1796 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Venture agreements may designate different allocations among the investors for any of the following: 1. a Profits and losses 2. b Specified costs and expenses 3. c Distributions of cash from operations 4. d Distributions of cash proceeds from liquidation. ##### [323-970-35-17](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-17) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:1dc5cd5fd6383a3d6704ca5a6ca3ce8c4f32bc5f213a4798c08a83732428faea Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Such agreements may also provide for changes in the allocations at specified times or on the occurrence of specified events. Accounting by the investors for their equity in the venture's earnings under such agreements requires careful consideration of substance over form and consideration of underlying values as discussed in paragraph [970-323-35-10](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-10). To determine the investor's share of venture net income or loss, such agreements or arrangements shall be analyzed to determine how an increase or decrease in net assets of the venture (determined in conformity with GAAP) will affect cash payments to the investor over the life of the venture and on its liquidation. Specified profit and loss allocation ratios shall not be used to determine an investor's equity in venture earnings if the allocation of cash distributions and liquidating distributions are determined on some other basis. For example, if a venture agreement between two investors purports to allocate all depreciation expense to one investor and to allocate all other revenues and expenses equally, but further provides that irrespective of such allocations, distributions to the investors will be made simultaneously and divided equally between them, there is no substance to the purported allocation of depreciation expense. ##### [323-970-35-18](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-18) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:ac2394d8d3660ae056b896a49fb5e8c07a9a5ff167c87164dddac126a524cab8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Section [323-30-25](https://asc.understandingaccounting.org/asc/323/30/#25-recognition) for guidance concerning partnership profit recognition. #### Accounting for Other Transactions with a Real Estate Venture ##### [323-970-35-19](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-19) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:60d23f52820760ded5870662e0f8cfbd0b154763dbafa3e7bfb5eadb6b670248 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See the [Acquisition, Development, and Construction Subsection](https://asc.understandingaccounting.org/asc/310/10/#35-subsequent-measurement) of Section 310-10-35 for additional guidance concerning subsequent measurement of [acquisition, development, and construction arrangements](https://asc.understandingaccounting.org/glossary/a/#acquisition-development-and-construction-arrangements "Acquisition, development, or construction arrangements, in which a lender, usually a financial institution, participates in expected residual profit from the sale or refinancing of property.") that are required to be accounted for as real estate joint ventures under that guidance. ##### [323-970-35-20](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-20) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:d1908a6666be20458e4a49d16f8ea941e3e6339dc0e66408e52d693951b1df83 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the real estate industry, the accounts of a venture may reflect accounting practices, such as those used to prepare tax basis data for investors, that vary from GAAP. If the financial statements of the investor are to be prepared in conformity with GAAP, such variances that are material shall be eliminated in applying the equity method. ##### [323-970-35-21](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-21) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:5571dc2a35d304ff2004513c2d00b8ca758438d26b5bf05fc8cd2a24e01756a3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Section 323-30-35 regarding income tax to be provided on profits accrued by investor-partners and tax liabilities applicable to partnership interests. ##### [323-970-35-22](https://asc.understandingaccounting.org/asc/323/970/#323-970-35-22) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:55.650Z to 2026-09-09T23:42:55.650Z Record version: sha256:a24cf738e844a82c93901c8c3cdf53ee80150ca2f332c04e1492db3b2191ca4f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Interest on loans and advances that are in substance capital contributions (for example, if all the investors are required to make loans and advances proportionate to their equity interests) shall be accounted for as distributions rather than as interest income by the investors. Source downloaded (UTC): 2026-09-09T23:42:57.983Z to 2026-09-09T23:42:57.983Z Record version: sha256:04102d4da56d6cd21f27d7e5cdf095c7050e8f18648f9fd0e260f1bc78124ef2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-970-40: 40 Derecognition [Read section](https://asc.understandingaccounting.org/asc/323/970/#40-derecognition) SEC content: no #### Sale of an Investment in a Real Estate Venture ##### [323-970-40-1](https://asc.understandingaccounting.org/asc/323/970/#323-970-40-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:57.983Z to 2026-09-09T23:42:57.983Z Record version: sha256:2467d6fa25e009373d85ebbdd6ac97fa8b0d062548d9a0999311a0711512dfbb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A sale of an investment in a consolidated [real estate venture](https://asc.understandingaccounting.org/glossary/r/#real-estate-venture "Any of the following: a joint venture, a general partnership, a limited partnership, and an undivided interest.") (including the sale of stock in a corporate real estate venture) shall be evaluated under the guidelines set forth in paragraphs [360-10-40-3A through 40-3B](https://asc.understandingaccounting.org/asc/360/10/#360-10-40-3A) . The sale of a noncontrolling investment in a real estate venture that is being accounted for in accordance with Topic 320 on investments—debt securities; Topic 321 on investments—equity securities; Topic 323 on investments—equity method and joint ventures; or Topic 325 on investments—other, shall be accounted for in accordance with the guidance in Topic 860 on transfers and servicing. #### Acquisition, Development, and Construction Arrangements ##### [323-970-40-2](https://asc.understandingaccounting.org/asc/323/970/#323-970-40-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:42:57.983Z to 2026-09-09T23:42:57.983Z Record version: sha256:6e775ced58dd65afd03d0a1279a27cbd35087e4cf69be4f57025284283a89e8e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See the [Acquisition, Development, and Construction Subsection](https://asc.understandingaccounting.org/asc/310/10/#40-derecognition) of Section 310-10-40 for additional guidance concerning derecognition of [acquisition, development, and construction arrangements](https://asc.understandingaccounting.org/glossary/a/#acquisition-development-and-construction-arrangements "Acquisition, development, or construction arrangements, in which a lender, usually a financial institution, participates in expected residual profit from the sale or refinancing of property.") that are required to be accounted for as real estate joint ventures under that guidance. Source downloaded (UTC): 2026-09-09T23:43:01.427Z to 2026-09-09T23:43:01.427Z Record version: sha256:2a08e7586cc4a237e960a9382f2bdfdb681fafad29b3e447c4d07d838c7aa30b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-970-45: 45 Other Presentation Matters [Read section](https://asc.understandingaccounting.org/asc/323/970/#45-other-presentation-matters) SEC content: no ##### [323-970-45-1](https://asc.understandingaccounting.org/asc/323/970/#323-970-45-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:01.427Z to 2026-09-09T23:43:01.427Z Record version: sha256:cf8b2ade20afb31c54b8364a98698406690c13e1b5fb33ce8265552076fbd824 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Section 970-323-25 for discussion of certain presentation matters. Source downloaded (UTC): 2026-09-09T23:43:04.021Z to 2026-09-09T23:43:16.668Z Record version: sha256:3f80644b426c891dac619c175e2e7dd73c33300bfa05df09d74961417329d8f6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-974: Investments—Equity Method and Joint Ventures — Real Estate—Real Estate Investment Trusts ### Machine-generated study aids ```json { "summary": "This Subtopic tells a REIT how to account for its investment in a \"service corporation\" — an affiliated entity, typically holding non-qualifying REIT activities, whose voting stock is largely held by others. Even without a voting majority, listed factors (activities performed primarily for the REIT, economic benefits flowing to the REIT, common board members/officers, nominal outside equity, management influence, access to financial information) indicate the REIT has at least significant influence, requiring the equity method or consolidation based on facts and circumstances (323-974-25-1). Service corporations that are variable interest entities are excluded and are instead evaluated under the VIE Subsections of Section 810-10.", "key_points": [ "The Subtopic addresses recognition and measurement for REIT investments, including accounting for related service corporations (323-974-05-1).", "Scope follows Section 974-10-15 and covers only service corporations that are not variable interest entities (323-974-15-2); service corporations that are VIEs are scoped out and evaluated under the Variable Interest Entities Subsections of Section 810-10 (323-974-15-3).", "Presence of some or all of eight enumerated factors indicates the REIT has the ability to exercise at least significant influence over the service corporation, so the REIT must apply the equity method or consolidate (323-974-25-1).", "Indicative factors include: the service corporation performs activities primarily for the REIT; substantially all economic benefits flow to the REIT; the REIT can designate a board seat; common board members, officers, or employees (323-974-25-1(a)–(e)).", "Additional factors include: majority voting stockholders of the service corporation have not contributed substantial equity; REIT management's views influence operations; and the REIT can obtain the financial information needed to apply the equity method (323-974-25-1(f)–(h)).", "The choice between equity method and consolidation is a facts-and-circumstances determination, not a bright-line voting-percentage test (323-974-25-1)." ], "categories": [ "Recognition", "Consolidation", "Industry-specific", "Subsequent measurement" ], "audience_level": "intermediate", "student_note": "Classic trap: students assume that because a REIT holds only nonvoting or minority stock in a service corporation, cost or fair value accounting applies — but the listed influence indicators usually force equity method or consolidation. Always check first whether the service corporation is a VIE, because if it is, this Subtopic does not apply and ASC 810-10's VIE model governs.", "related_topics": [ "323-10", "810-10", "974-10", "974-810", "325-20" ], "key_concepts": [ "real estate investment trust", "service corporation", "significant influence", "equity method", "consolidation", "variable interest entity", "nominal outside equity", "facts and circumstances assessment" ] } ``` Source downloaded (UTC): 2026-09-09T23:43:04.021Z to 2026-09-09T23:43:04.021Z Record version: sha256:43e3a49b69d44fe4f1e6ad579f203c5926cce14a0408c1128abf1f754701ca86 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-974-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/323/974/#00-status) SEC content: no ##### [323-974-00-1](https://asc.understandingaccounting.org/asc/323/974/#323-974-00-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:04.021Z to 2026-09-09T23:43:04.021Z Record version: sha256:8df941d5a16000ab7f1d63af6950ea2279c8013f1e326a83c9af00c76cff92ef Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
974-323-25-1AmendedAccounting Standards Update No. 2016-0101/05/2016
Source downloaded (UTC): 2026-09-09T23:43:05.989Z to 2026-09-09T23:43:05.989Z Record version: sha256:c4e3bcfff7013f825dfc1c35850054d7facf93217cdfc3985e3868b208a019b2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-974-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/323/974/#05-overview-and-background) SEC content: no ##### [323-974-05-1](https://asc.understandingaccounting.org/asc/323/974/#323-974-05-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:05.989Z to 2026-09-09T23:43:05.989Z Record version: sha256:f966bad98df07d23ad42b3d60ca3d1b888acd3b449a1820ad7707e18af4f6efb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic addresses recognition and measurement issues for investments of [real estate investment trusts](https://asc.understandingaccounting.org/glossary/r/#real-estate-investment-trust "Real estate investment trusts generally are formed as trusts, associations, or corporations. They employ equity capital, coupled with substantial amounts of debt financing, in making real estate loans and investments. Real estate investment trusts must distribute substantially all of their taxable income to their shareholders annually in order to retain their favorable tax status (that is, dividends paid are treated as deductions in arriving at taxable income)."), including the accounting for related [service corporations](https://asc.understandingaccounting.org/glossary/s/#service-corporation "A real estate investment trust may establish a service corporation to perform services for the real estate investment trust or for third parties. Service corporations may provide property management and leasing services, as well as services to acquire, develop, construct, finance, or sell real estate projects."). Source downloaded (UTC): 2026-09-09T23:43:09.662Z to 2026-09-09T23:43:09.662Z Record version: sha256:6b700f505d2d903df84ddc73fd01b853ae7e11f5656a09bb3fb5b64d5b3502f6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-974-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/323/974/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [323-974-15-1](https://asc.understandingaccounting.org/asc/323/974/#323-974-15-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:09.662Z to 2026-09-09T23:43:09.662Z Record version: sha256:9bbc232d992fb54706ddb3bfa4065c855e322f1f3c4cd69f045c467b1cd6d420 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 974-10-15, with specific exceptions noted below. #### Entities ##### [323-974-15-2](https://asc.understandingaccounting.org/asc/323/974/#323-974-15-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:09.662Z to 2026-09-09T23:43:09.662Z Record version: sha256:9f9b89568c81f9bb61b9fee90ed092e66fc2149461e1a887851610e3879de1d6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Subtopic applies to the following entities: 1. a [Service corporations](https://asc.understandingaccounting.org/glossary/s/#service-corporation "A real estate investment trust may establish a service corporation to perform services for the real estate investment trust or for third parties. Service corporations may provide property management and leasing services, as well as services to acquire, develop, construct, finance, or sell real estate projects.") that are not variable interest entities (VIEs). ##### [323-974-15-3](https://asc.understandingaccounting.org/asc/323/974/#323-974-15-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:09.662Z to 2026-09-09T23:43:09.662Z Record version: sha256:233511c07f654fafb5942b1d3115c8b4b808715f6d4e6ea1a120cb992d7732f3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Subtopic does not apply to the following entities: 1. a Service corporations that are VIEs (see the Variable Interest Entities Subsections of Section 810-10). Source downloaded (UTC): 2026-09-09T23:43:16.668Z to 2026-09-09T23:43:16.668Z Record version: sha256:4c44679788d7eb0aab3ab0bc7ddda1a861ea4c9f578515a9e514a749e4a20eb5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-974-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/323/974/#25-recognition) SEC content: no #### Service Corporations ##### [323-974-25-1](https://asc.understandingaccounting.org/asc/323/974/#323-974-25-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:16.668Z to 2026-09-09T23:43:16.668Z Record version: sha256:09c0db7606321c0174f61e412713d9034d5e1d9637522ba9b3af529835a52f54 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The existence of some or all of the following factors indicates that the [real estate investment trust](https://asc.understandingaccounting.org/glossary/r/#real-estate-investment-trust "Real estate investment trusts generally are formed as trusts, associations, or corporations. They employ equity capital, coupled with substantial amounts of debt financing, in making real estate loans and investments. Real estate investment trusts must distribute substantially all of their taxable income to their shareholders annually in order to retain their favorable tax status (that is, dividends paid are treated as deductions in arriving at taxable income).") has the ability to exercise at least significant influence over the [service corporation](https://asc.understandingaccounting.org/glossary/s/#service-corporation "A real estate investment trust may establish a service corporation to perform services for the real estate investment trust or for third parties. Service corporations may provide property management and leasing services, as well as services to acquire, develop, construct, finance, or sell real estate projects.") and that, accordingly, the real estate investment trust should either account for its investment under the equity method or should consolidate the investee. 1. a The service corporation performs activities primarily for the real estate investment trust. 2. b Substantially all of the economic benefits in the service corporation flow to the real estate investment trust. 3. c The real estate investment trust has the ability to designate a seat on the board of directors of the service corporation. 4. d The real estate investment trust and the service corporation have common board members. 5. e The real estate investment trust and the service corporation have common officers, employees, or both. 6. f The owners of the majority voting stock of the service corporation have not contributed substantial equity to the service corporation. 7. g The views of the real estate investment's management influence the operations of the service corporation. 8. h The real estate investment trust is able to obtain financial information from the service corporation that is needed to apply the equity method of accounting to its investment in the service corporation. The determination of whether the real estate investment trust should use the equity method of accounting for its investment in the service corporation or consolidate the service corporation in its financial statements should be based on facts and circumstances. ##### [323-974-25-2](https://asc.understandingaccounting.org/asc/323/974/#323-974-25-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:43:16.668Z to 2026-09-09T23:43:16.668Z Record version: sha256:1afba76c00720cfcc9c032ed769736e1e94fba617059a3741a06baaf6afa3062 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/).