# ASC 326-30-30: Financial Instruments—Credit Losses — Available-for-Sale Debt Securities — 30 Initial Measurement

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/326/30/#30-initial-measurement)

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## ASC 326-30-30: 30 Initial Measurement

[Read section](https://asc.understandingaccounting.org/asc/326/30/#30-initial-measurement)

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##### [326-30-30-1](https://asc.understandingaccounting.org/asc/326/30/#326-30-30-1)

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Throughout this Subtopic, the term _earnings_ shall be read as _performance indicator_, and _other comprehensive income_ shall be read as _outside the performance indicator_ for [debt securities](https://asc.understandingaccounting.org/glossary/d/#debt-security "Any security representing a creditor relationship with an entity. The term debt security also includes all of the following: Preferred stock that by its terms either must be redeemed by the issuing entity or is redeemable at the option of the investor A collateralized mortgage obligation (or other instrument) that is issued in equity form but is required to be accounted for as a nonequity instrument regardless of how that instrument is classified (that is, whether equity or debt) in the issuer's statement of financial position U.S. Treasury securities U.S. government agency securities Municipal securities Corporate bonds Convertible debt Commercial paper All securitized debt instruments, such as collateralized mortgage obligations and real estate mortgage investment conduits Interest-only and principal-only strips. The term debt security excludes all of the following: Option contracts Financial futures contracts Forward contracts Lease contracts Receivables that do not meet the definition of security and, so, are not debt securities, for example: Trade accounts receivable arising from sales on credit by industrial or commercial entities Loans receivable arising from consumer, commercial, and real estate lending activities of financial institutions.") that are within the scope of Subtopic 958-320 on debt securities of not-for-profit entities.

##### [326-30-30-1A](https://asc.understandingaccounting.org/asc/326/30/#326-30-30-1A)

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If for the purposes of identifying and measuring an impairment the applicable accrued interest is excluded from both the [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") and the [amortized cost basis](https://asc.understandingaccounting.org/glossary/a/#amortized-cost-basis "The amortized cost basis is the amount at which a financing receivable or investment is originated or acquired, adjusted for applicable accrued interest, accretion, or amortization of premium, discount, and net deferred fees or costs, collection of cash, writeoffs, foreign exchange, and fair value hedge accounting adjustments.") of the available-for-sale debt security, an entity may develop its estimate of expected credit losses by measuring components of the amortized cost basis on a combined basis or by separately measuring the applicable accrued interest component from the other components of amortized cost basis.

##### [326-30-30-1B](https://asc.understandingaccounting.org/asc/326/30/#326-30-30-1B)

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If an entity excludes applicable accrued interest from both the fair value and the amortized cost basis of the available-for-sale debt security, the entity may make an accounting policy election, at the major security-type level, not to measure an allowance for credit losses for accrued interest receivables if it writes off the uncollectible accrued interest receivable balance in a timely manner. An entity that elects the accounting policy in this paragraph shall meet the disclosure requirements in paragraph [326-30-50-3C](https://asc.understandingaccounting.org/asc/326/30/#326-30-50-3C). This accounting policy election shall be considered separately from the accounting policy election in paragraph [326-30-35-13A](https://asc.understandingaccounting.org/asc/326/30/#326-30-35-13A). An entity may not analogize this guidance to components of amortized cost basis other than accrued interest.

#### Purchased Financial Assets with Credit Deterioration

##### [326-30-30-2](https://asc.understandingaccounting.org/asc/326/30/#326-30-30-2)

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A purchased [debt security](https://asc.understandingaccounting.org/glossary/d/#debt-security "Any security representing a creditor relationship with an entity. The term debt security also includes all of the following: Preferred stock that by its terms either must be redeemed by the issuing entity or is redeemable at the option of the investor A collateralized mortgage obligation (or other instrument) that is issued in equity form but is required to be accounted for as a nonequity instrument regardless of how that instrument is classified (that is, whether equity or debt) in the issuer's statement of financial position U.S. Treasury securities U.S. government agency securities Municipal securities Corporate bonds Convertible debt Commercial paper All securitized debt instruments, such as collateralized mortgage obligations and real estate mortgage investment conduits Interest-only and principal-only strips. The term debt security excludes all of the following: Option contracts Financial futures contracts Forward contracts Lease contracts Receivables that do not meet the definition of security and, so, are not debt securities, for example: Trade accounts receivable arising from sales on credit by industrial or commercial entities Loans receivable arising from consumer, commercial, and real estate lending activities of financial institutions.") classified as available-for-sale shall be considered to be a [purchased financial asset with credit deterioration](https://asc.understandingaccounting.org/glossary/p/#purchased-financial-assets-with-credit-deterioration "Acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that as of the date of acquisition have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by an acquirer's assessment. See paragraph 326-20-55-5 for more information on the meaning of similar risk characteristics for assets measured on an amortized cost basis.") when the indicators of a credit loss in paragraph [326-30-55-1](https://asc.understandingaccounting.org/asc/326/30/#326-30-55-1) have been met. The allowance for credit losses for purchased [financial assets](https://asc.understandingaccounting.org/glossary/f/#financial-asset "Cash, evidence of an ownership interest in an entity, or a contract that conveys to one entity a right to do either of the following: Receive cash or another financial instrument from a second entity Exchange other financial instruments on potentially favorable terms with the second entity.") with credit deterioration shall be measured at the individual security level in accordance with paragraphs

[326-30-35-3 through 35-10](https://asc.understandingaccounting.org/asc/326/30/#326-30-35-3)

. The [amortized cost basis](https://asc.understandingaccounting.org/glossary/a/#amortized-cost-basis "The amortized cost basis is the amount at which a financing receivable or investment is originated or acquired, adjusted for applicable accrued interest, accretion, or amortization of premium, discount, and net deferred fees or costs, collection of cash, writeoffs, foreign exchange, and fair value hedge accounting adjustments.") for purchased financial assets with credit deterioration shall be considered to be the purchase price plus any allowance for credit losses. See paragraphs

[326-30-55-1 through 55-7](https://asc.understandingaccounting.org/asc/326/30/#326-30-55-1)

for implementation guidance.

##### [326-30-30-3](https://asc.understandingaccounting.org/asc/326/30/#326-30-30-3)

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Estimated credit losses shall be discounted at the rate that equates the present value of the purchaser's estimate of the security's future cash flows with the purchase price of the asset.

##### [326-30-30-4](https://asc.understandingaccounting.org/asc/326/30/#326-30-30-4)

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An entity shall record the [holding gain or loss](https://asc.understandingaccounting.org/glossary/h/#holding-gain-or-loss "The net change in fair value of a security. The holding gain or loss does not include dividend or interest income recognized but not yet received, writeoffs, or the allowance for credit losses.") through other comprehensive income, net of applicable taxes.