# ASC 460-10-55: Guarantees — Overall — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/460/10/#55-implementation-guidance-and-illustrations) 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): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:18aeb38e739b8e97bbdd60896865270edd601c35dcaa3438a4c17f452f8d4d61 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 460-10-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/460/10/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [460-10-55-1](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:75bac086da3f0293c46430d77f0e11625cafa8fd7d2d72a63910c9b95f59b87a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The implementation guidance for guarantees within the scope of this Topic is organized as follows: 1. a Financial guarantees, which contains scope guidance for paragraph [460-10-15-4(a)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4) 2. b Performance guarantees, which contains scope guidance for paragraph [460-10-15-4(b)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4) 3. c Indemnifications, which contains scope guidance for paragraph [460-10-15-4(c)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4) 4. d [Indirect guarantees of the indebtedness](https://asc.understandingaccounting.org/glossary/i/#indirect-guarantee-of-indebtedness "An agreement that obligates the guarantor to transfer funds to a debtor upon the occurrence of specified events, under conditions whereby: After funds are transferred from the guarantor to the debtor, the funds become legally available to creditors through their claims against the debtor Those creditors may enforce the debtor's claims against the guarantor under the agreement. In contrast, with a direct guarantee of indebtedness, if the debtor defaults, the creditor has a direct claim on the guarantor. Examples of indirect guarantees include agreements to advance funds if a debtor's net income, coverage of fixed charges, or working capital falls below a specified minimum.") of others, which contains scope guidance for paragraph [460-10-15-4(d)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4). The lists that follow are not intended to be all-inclusive. ##### [460-10-55-2](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:9ec026b89404705d408fb3583b1ab4629f8ba22a163709df4aaf02bd03d251d4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following are examples of contracts of the type described in paragraph [460-10-15-4(a)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4): 1. a A [financial standby letter of credit](https://asc.understandingaccounting.org/glossary/f/#financial-standby-letter-of-credit "An irrevocable undertaking (typically by a financial institution) to guarantee payment of a specified financial obligation.") 2. b A market value guarantee on either a financial asset (such as a security) or a nonfinancial asset owned by the guaranteed party 3. c A guarantee of the market price of the common stock of the guaranteed party 4. d A guarantee of the collection of the scheduled contractual cash flows from individual financial assets held by a special-purpose entity 5. e A guarantee granted to a business or its owner(s) that the revenue of the business (or a specific portion of the business) for a specified period of time will be at least a specified amount. ##### [460-10-55-3](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:b91f51dcf16aee31c0d538ace3bfd0bcd7f7c44d77a30f9817084ada955fa221 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Option-based contracts in which any net potential contingent payment can flow only from the guarantor to the guaranteed party may meet one of the characteristics in paragraph [460-10-15-4](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4) and be included in the scope of this Topic. (Some guarantees obligate the guaranteed party to pay all or a portion of the premium to the guarantor at a later date; those premium payments are not contingent payments as discussed in the previous sentence.) ##### [460-10-55-4](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:a33dc53919a30765889483b2614dd6ac4174045e88b2f6ccfc322d828a3d6bee Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A put option is a market value guarantee because it gives the holder the right to sell a specified quantity of an asset related to the [underlying](https://asc.understandingaccounting.org/glossary/u/#underlying "A specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, or other variable (including the occurrence or nonoccurrence of a specified event such as a scheduled payment under a contract). An underlying may be a price or rate of an asset or liability but is not the asset or liability itself. An underlying is a variable that, along with either a notional amount or a payment provision, determines the settlement of a derivative instrument.") to the writer of the option at a specified price (strike price) up to the expiration date. For example, paragraphs [860-20-55-20 through 55-23](https://asc.understandingaccounting.org/asc/860/20/#860-20-55-20) address the interaction of various Subtopics (including this Subtopic) in accounting for transactions that involve sale of a marketable security to a third-party buyer, with the buyer's having an option to put the security back to the seller at a specified future date or dates for a fixed price. ##### [460-10-55-5](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:b09919b74138e71fd39d4f0652adb108bb45a2ea796bbcc36811c71b15b2db01 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [460-10-15-4(a)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4) states that the provisions of this Topic apply to a guarantee contract that contingently requires a guarantor to make payments to a guaranteed party based on changes in an underlying that is related to an asset, a liability, or an equity security of the guaranteed party. This paragraph addresses whether the characteristic in paragraph 460-10-15-4(a) is met for a put option written by a guarantor that did not know whether the guaranteed party had an asset or liability related to the underlying described in paragraph 460-10-15-4(a). If, upon exercise, the put option requires gross settlement and the asset to be delivered under gross settlement is related to the underlying described in paragraph 460-10-15-4(a), characteristic (a) in paragraph 460-10-15-4 shall be considered to be met. ##### [460-10-55-6](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:3aaf1120387682d22552e66da8fa42be5cd41511d7b2fb6b18d61f391c2e9535 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For example, if an investor entered into two separate contracts—a nonputtable bond and a freestanding put option contract that can be settled only by delivery of the bond—and was accounting for those contracts separately, that freestanding put option contract would be a guarantee that meets the characteristic in paragraph [460-10-15-4(a)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4). ##### [460-10-55-7](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:ecc82a6add5dbb401548bf61c61cc0e43a61e90d2b597558a4ffcac7e62ebcef Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In contrast, if a put option permits or requires net settlement, the guarantor must consider its business relationship with the guaranteed party and the other circumstances involved in the issuance of the put option in deciding whether it is [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") that the guaranteed party has, on or about the date of the put option's issuance, an asset or liability related to the underlying described in paragraph [460-10-15-4(a)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4). If the guarantor has no basis for concluding that it is probable that the guaranteed party has that asset or liability, the characteristic in that paragraph would not be met for that written put option and it would not be within the scope of this Topic. ##### [460-10-55-8](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:ee530e977bc3c7296c650164a9102697191100f2b6e44e48c660513231c227f9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a put option that permits or requires net settlement and for which the characteristic in paragraph [460-10-15-4(a)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4) is considered to be met at inception, the guarantor shall continue complying with the disclosure requirements of the [General Subsection](https://asc.understandingaccounting.org/asc/460/10/#50-disclosure) of Section 460-10-50 over the term of the put option without an ongoing assessment of whether the guaranteed party continues to have the related asset or liability over that period. ##### [460-10-55-9](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:13fc7783c2de9a133fe09510598902bafdb2bb013f319eb3b05cf892c78588f2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Contingent forward contracts may meet one of the characteristics in paragraph [460-10-15-4](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4) and be included in the scope of this Topic. A freestanding put option contract that can be settled only by delivery of the asset related to the underlying could be viewed as a contingent forward contract. ##### [460-10-55-10](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:19e10756da2d9445b1d40c9e9ce9d47f7def80edd89b6b35bf6526d1933eb195 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An example of the type of guarantee described in paragraph [460-10-55-2(e)](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-2) is a [minimum revenue guarantee](https://asc.understandingaccounting.org/glossary/m/#minimum-revenue-guarantee "A guarantee granted to a business or its owners that the revenue of the business (or a specific portion of the business) for a specified period of time will be at least a specified minimum amount.") granted to a new day-care center by a corporation as an incentive for the center to locate near the corporation's main plant. The corporation, as the guarantor, has agreed to make monthly payments to the day-care center (the guaranteed party) over a specified term for any shortfall from the guaranteed minimum amount of revenue for each month. ##### [460-10-55-11](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:6eba1d969c7ecbc90c995219208546c6bdd6491b17e17c63ec6d5198b9654e54 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Another example is a guarantee granted to a nonemployee physician by a not-for-profit health care facility that has recruited the physician to move to the facility's geographical area to establish a practice. The health care facility, as the guarantor, has agreed to make payments to the newly arrived physician (the guaranteed party) at the end of specific periods of time if the gross revenues (gross receipts) generated by the physician's new practice during that period of time do not equal or exceed a specific dollar amount. This Topic applies to minimum revenue guarantees granted to physicians regardless of whether the physician's practice qualifies as a [business](https://asc.understandingaccounting.org/glossary/b/#business "Paragraphs 805-10-55-3A805-10-55-4805-10-55-5805-10-55-6 and 805-10-55-8805-10-55-9 define what is considered a business."). ##### [460-10-55-12](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:73a442df0cc4e6d69e610db8462a07a7d43a9014b5d5f97b682dd768a20481c3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following are examples of contracts of the type described in paragraph [460-10-15-4(b)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4): 1. a [Performance standby letters of credit](https://asc.understandingaccounting.org/glossary/p/#performance-standby-letter-of-credit "An irrevocable undertaking by a guarantor to make payments in the event a specified third party fails to perform under a nonfinancial contractual obligation.") 2. b Bid bonds 3. c Performance bonds 4. d Other contracts that are similar to performance standby letters of credit. ##### [460-10-55-13](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:33d93309c0949176ee649a43f1c9803d8ff3e0c70d3acbf72914b4962844ee21 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following are examples of contracts of the type described in paragraph [460-10-15-4(c)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4): 1. a An indemnification agreement (contract) that contingently requires the indemnifying party (guarantor) to make payments to the indemnified party (guaranteed party) based on an adverse judgment in a lawsuit or the imposition of additional taxes due to either a change in the tax law or an adverse interpretation of the tax law. 2. b A lessee's indemnification of the lessor for any adverse tax consequences that may arise from a change in the tax laws, because only a legislative body can change the tax laws, and the lessee therefore has no control over whether payments will be required under that indemnification. In contrast, as discussed in paragraph [460-10-55-18(a)](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-18), when a lessee indemnifies a lessor against adverse tax consequences that may arise from acts, omissions, and misrepresentations of the lessee, that indemnification is outside the scope of this Topic because the lessee is, in effect, guaranteeing its own future performance. 3. c A seller's indemnification against additional income taxes due for years before a business combination, because the indemnification relates to the seller-guarantor's past performance, not its future performance. ##### [460-10-55-14](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-14) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:c820f43a68b9ed492760cd53081f6b5c87463083e554c9a188618e14d5e9828c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following is an example of a contract of the type described in paragraph [460-10-15-4(d)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4). ##### [460-10-55-15](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-15) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:9ce228a44ec09f6bc9676f6b8d0ad65e64c73dbe876af7c48058b3dc837c3471 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A community foundation has a loan guarantee program to assist not-for-profit entities (NFPs) in obtaining bank financing at a reasonable cost. Under that program, the community foundation issues a guarantee of an NFP's bank debt. That guarantee is within the scope of this Topic, and on the issuance of the guarantee, the community foundation would recognize a liability for 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.") of that guarantee. The issuance of that guarantee would not be considered merely a conditional promise to give under paragraphs [958-605-25-11 through 25-13](https://asc.understandingaccounting.org/asc/605/958/#605-958-25-11) because, upon the issuance of the guarantee, the NFP will have received the gift of the community foundation's credit support. That credit support enables the NFP to obtain a lower interest rate on its borrowing. ##### [460-10-55-16](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-16) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:e24b06862830b3b58e1e7a21ba52718da981fc63341d436feff7f29f525c5fee Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following are examples of contracts that are outside the scope of this Topic because they are not of any of the types described in paragraph [460-10-15-4](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4): 1. a [Commercial letters of credit](https://asc.understandingaccounting.org/glossary/c/#commercial-letter-of-credit "A document issued typically by a financial institution on behalf of its customer (the account party) authorizing a third party (the beneficiary), or in special cases the account party, to draw drafts on the institution up to a stipulated amount and with specified terms and conditions; it is a conditional commitment (except if prepaid by the account party) on the part of the institution to provide payment on drafts drawn in accordance with the terms of the document.") and other loan commitments, which are commonly thought of as guarantees of funding, are not included in the scope of this Topic because those instruments do not guarantee payment of a money obligation and do not provide for payment in the event of default by the account party. 2. b A noncontingent forward contract for which net settlement could involve a net settlement payment from either party is not included in the scope of this Topic. However, as discussed in paragraph [460-10-55-9](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-9), a contingent forward contract may meet one of the characteristics in paragraph [460-10-15-4](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4) and be included in the scope of this Topic. 3. c A guarantee provision in a financial instrument that is commonly thought of as a market value guarantee of the other terms of that same financial instrument is not within the scope of this Topic unless that guarantee provision is accounted for separately as a derivative under Topic 815 (see paragraph [460-10-25-1(a)](https://asc.understandingaccounting.org/asc/460/10/#460-10-25-1)). For example, a put option that is embedded in a puttable bond (but is not accounted for separately as a derivative) could be viewed by the investor (the guaranteed party) as a guarantee against the fair value of the remaining instrument (a bond absent the put option) declining below the put price. The embedded put option does not meet the characteristic in paragraph [460-10-15-4(a)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4) because the guaranteed party's asset is an investment in the entire contract, a puttable bond, and not an investment in a nonputtable bond. However, as noted in paragraph [460-10-55-6](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-6), if the investor purchased a freestanding put option on a nonputtable bond and accounted for them separately, that guarantee would be within the scope of this Topic. 4. d An arrangement, such as a securitization, that involves the subordination of the rights of some investors (or creditors) to the rights of others is commonly thought of as a guarantee issued by the subordinated investors. For example, the investors in one (subordinated) class or tranche of an entity's securities might not receive any cash flows until the investors in another (priority) class or tranche are fully paid. Although that type of subordination provides credit protection by the subordinated investors, it does not meet any of the characteristics in paragraph [460-10-15-4](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4) and, thus, is not included in the scope of this Topic. 5. e A written option that does not directly guarantee another entity's performance or the fair value of the guaranteed party's assets (such as a [weather derivative](https://asc.understandingaccounting.org/glossary/w/#weather-derivative "A forward-based or option-based contract for which settlement is based on a climatic or geological variable. One example of such a variable is the occurrence or nonoccurrence of a specified amount of snow at a specified location within a specified period of time.")) is not included in the scope of this Topic unless that written option is used as an indirect guarantee of the indebtedness of others. 6. f A [take-or-pay contract](https://asc.understandingaccounting.org/glossary/t/#take-or-pay-contract "An agreement between a purchaser and a seller that provides for the purchaser to pay specified amounts periodically in return for products or services. The purchaser must make specified minimum payments even if it does not take delivery of the contracted products or services.") is not included in the scope of this Topic because the minimum payments under a take-or-pay contract are not contingent. A take-or-pay contract requires certain minimum payments irrespective of whether the buyer accepts delivery. Even if a take-or-pay contract were analyzed as though it were a guarantee by the buyer to pay for the portion of the minimum quantity of product or output of the guaranteed party for which the buyer refuses to order or accept delivery, a take-or-pay contract would not be included in the scope of this Topic because it would be a guarantee related to the buyer's future performance under the contract. (Take-or-pay contracts are further discussed in the Unconditional Purchase Obligations Subsections of Subtopic 440-10.) 7. g A weather derivative is not included in the scope of this Topic because the climatic or geological variable is not an asset or liability of the guaranteed party. The characteristic in paragraph [460-10-15-4(a)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4) requires payments to be based on changes in an underlying that is related only to an asset or liability of the guaranteed party. ##### [460-10-55-17](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-17) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:6c36e39aed93820bb53c7483fc615a5a3d14749d3e5d62536a4fd14e623bf56b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following is an example of a contract that is outside the scope of this Topic because it is of the type described in paragraph [460-10-15-7(g)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-7). 1. a [Subparagraph superseded by Accounting Standards Update No. 2016-02](https://asc.understandingaccounting.org/updates/asu-2016-02/). 2. b [Subparagraph superseded by Accounting Standards Update No. 2016-02](https://asc.understandingaccounting.org/updates/asu-2016-02/). 3. c A transaction that involves sale of a marketable security to a third-party buyer with the buyer having an option to put the security back to the seller at a specified future date or dates for a fixed price, if the existence of the put option prevents the transferor from accounting for the transaction as a sale, as described in paragraphs [860-20-55-20 through 55-23](https://asc.understandingaccounting.org/asc/860/20/#860-20-55-20) . 4. d [Subparagraph superseded by Accounting Standards Update No. 2016-02](https://asc.understandingaccounting.org/updates/asu-2016-02/). 5. e [Subparagraph superseded by Accounting Standards Update No. 2014-09](https://asc.understandingaccounting.org/updates/asu-2014-09/). ##### [460-10-55-18](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-18) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:26a8df24af455b171d777ef88a39ec7a6c1b6740e6f109e726ebb8ab0d24979f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following are examples of contracts that are outside the scope of this Topic because these contracts are of the type described in paragraph [460-10-15-7(i)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-7): 1. a A lessee will often indemnify a lessor for any adverse tax consequences that may arise from acts, omissions, and misrepresentations of the lessee (for example, using the leased asset outside the United States or subleasing to a tax-exempt entity). The lessee is, in effect, guaranteeing that its own future performance and actions with respect to the lease and the leased property will not result in adverse tax consequences to the lessor. Thus, that lessee's indemnification is not within the scope of this Topic. In contrast, as discussed in paragraph [460-10-55-13(b)](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-13), a guarantee by a lessee regarding the effect of future changes in the tax law on the guaranteed party's tax liability is within the scope of this Topic because the lessee cannot change the tax law (or prevent a change) and thus cannot control whether payments will be required under the guarantee. 2. b An entity's guarantee of its own future performance, such as that entity's completion of a contract by a specified deadline is not within the scope of this Topic. 3. c In consolidated financial statements, a parent's guarantee of a subsidiary's debt to a third party would simply be a guarantee of the consolidated entity's own performance to make the scheduled payments on that consolidated liability, which is not a guarantee within the scope of this Topic for the consolidated reporting entity. ##### [460-10-55-19](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-19) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:33b31617a77f4f4d1c2f62b1d024a06e0113eaa6bef69b0312d15f2964cfb345 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following is an example of a contract that is not subject to the General Subsections of Sections 460-10-25 and 460-10-30 because it is of one of the types described in paragraph [460-10-25-1](https://asc.understandingaccounting.org/asc/460/10/#460-10-25-1). The contract is subject to the [General Subsection](https://asc.understandingaccounting.org/asc/460/10/#50-disclosure) of Section 460-10-50. ##### [460-10-55-20](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-20) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:d5b2d8a9e0dc241d1105498025c84ca6e97ea7b8bf9778ee937e4111270a960f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a guarantee contract stipulates that the guarantor's payment, if required, can be in the form of the guarantor's own equity shares at the guarantor's option, that obligation may, depending on the arrangements of the contract, be considered to be equity rather than a liability and, if so, the guarantee contract meets the characteristic in paragraph [460-10-25-1(d)](https://asc.understandingaccounting.org/asc/460/10/#460-10-25-1). To determine if a contract would be considered equity or a liability, see Topic 480 and Topic 505. See paragraph [460-10-55-24](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-24) if the guarantor's shares are placed in a trust or in some other similar arrangement to facilitate performance under the guarantee. ##### [460-10-55-21](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-21) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:44889e242c0ebdfc729f5bd33f89ee1f5bc203f5823d584855534d0274f7cea5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In many cases, the one-time premium received by a guarantor for issuing a guarantee will be an appropriate practical expedient for the initial measurement of the guarantee obligation (see paragraph [460-10-30-2\[a\]](https://asc.understandingaccounting.org/asc/460/10/#460-10-30-2)). However, if a one-time premium is specified for a guarantee that is issued in conjunction with another transaction (such as the sale of assets by the guarantor), the specified premium may not be an appropriate initial measurement of the guarantor's liability because the amount specified as being applicable to the guarantee may or may not be its fair value (see paragraph [460-10-30-2\[b\]](https://asc.understandingaccounting.org/asc/460/10/#460-10-30-2)). ##### [460-10-55-22](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-22) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:5e1a220223d5adbd8fef49a5c6bcdeaea58f7754a5e5d044654115a8b46c68ae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with paragraph [460-10-30-2](https://asc.understandingaccounting.org/asc/460/10/#460-10-30-2), a liability shall be recognized at the inception of the guarantee even if the guarantor does not receive a separately identified premium when it issues the guarantee. For example, in conjunction with the cash sale of equipment to a customer, a manufacturer may issue to its customer's bank a guarantee of the customer's loan for which the proceeds are used to pay for the equipment. There is no separately identified premium for the guarantee, although the sales arrangement may impound an implicit premium. The manufacturer may simply view the guarantee as an accommodation to its customer. The seller-guarantor has incurred an obligation identical to the obligation it would incur if it required its customer to pay an explicit premium for the guarantee. Thus, the seller-guarantor shall immediately recognize a liability for its obligations under a newly issued guarantee, even if a separately identified premium was not received. If an entity guaranteed a customer's bank loan purely as an accommodation to an important longstanding customer, unrelated to a specific transaction, the liability for the entity's obligations under the guarantee should be recognized. ##### [460-10-55-23](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-23) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:66c71d99c86996a5eb80fafa08fdc66e70b8586fbd488fd4bccb86772b02e136 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although paragraph [460-10-25-4](https://asc.understandingaccounting.org/asc/460/10/#460-10-25-4) does not prescribe a specific account, the following illustrate a guarantor's offsetting entries when it recognizes the liability at the inception of the guarantee: 1. a If the guarantee were issued in a standalone transaction for a premium, the offsetting entry would be consideration received (such as cash or a receivable). 2. b If the guarantee were issued in conjunction with the sale of assets, a product, or a business, the overall proceeds (such as the cash received or receivable) would be allocated between the consideration being remitted to the guarantor for issuing the guarantee and the proceeds from the sale. That allocation would affect the calculation of the gain or loss on the sale transaction. 3. c If the guarantee were issued in conjunction with the formation of a partially owned business or a venture accounted for under the equity method, the recognition of the liability for the guarantee would result in an increase to the carrying amount of the investment. 4. d [Subparagraph superseded by Accounting Standards Update No. 2016-02](https://asc.understandingaccounting.org/updates/asu-2016-02/). 5. e If a guarantee were issued to an unrelated party for no consideration on a standalone basis (that is, not in conjunction with any other transaction or ownership relationship), the offsetting entry would be to expense. ##### [460-10-55-23A](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-23A) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:e2016926b962502886c26d068fde4ffab47a65a7266fc4a83d8b9aa803c35070 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance addresses the application of this Subtopic to the recognition and initial measurement of a tax indemnification provided by a lessee to a lessor. Paragraph [460-10-25-4](https://asc.understandingaccounting.org/asc/460/10/#460-10-25-4) requires that the lessee (guarantor) account for a tax indemnification provided to the lessor by recognizing a liability at lease inception (which is also the inception of the indemnification clause). Section 460-10-30 requires that the measurement objective of that initial recognition be the fair value of the lessee's obligation under the indemnification agreement. ##### [460-10-55-24](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-24) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:f4debcf2ecdb50af7c8a4e46355d45bce6af4f696ef12f51a0278b6bfdc11ae9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under some arrangements, a loss under a guarantee is settled by the guarantor's issuing a variable number of its own equity shares. Those arrangements are often called share-trust or share-collateral transactions, whereby some specified number of the guarantor's shares is put in a trust or in some other similar arrangement to facilitate performance under the guarantee. The use of collateral arrangements under that guarantee does not change the accounting for the guarantee; thus, those arrangements are subject to the recognition, measurement, and disclosure requirements of this Topic and Topic 450. See paragraph [460-10-55-20](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-20) for additional scope guidance. Furthermore, those arrangements also could affect the calculation of earnings per share (EPS) under Topic 260 and disclosures thereunder. #### Illustrations ##### [460-10-55-25](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-25) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:b0ae4ca0d98e6430f5fd95bb596b832fa6caa864b31a2c5486f9e1fea094c03a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the disclosure required by paragraph [275-10-50-15(j)](https://asc.understandingaccounting.org/asc/275/10/#275-10-50-15) of the potential near-term effect of a change in estimate of a contingent liability resulting from the guarantee of the debt of another entity. Entity A's loss of customers causes the potential for a near-term material change in that estimate within the next fiscal year. Although disclosure of Entity A's ongoing efforts to replace those customers is not required, this additional information may be presented. ##### [460-10-55-26](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-26) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:ddda50969d622e03fabd74fdc8e4ac33b70048ac856f415d5cc5166abf1fe480 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A operates a shipping center in Local City. In 19X0, Entity A decided to raise money for modernization of facilities through a debt offering. In order for the offering to take place, Entity B, a local manufacturer, agreed to guarantee the bonds if Entity A's revenues were insufficient to pay debt service. In May 19X4 (four years later when the bonds had an outstanding balance of $55 million), Entity A lost two of its major shipping customers, constituting 35 percent of its prior-year revenues, to a competitor in a neighboring port. At Entity B's June 30, 19X4, year end, Entity A was directing substantial efforts toward finding new customers. It is reasonably possible, however, that Entity A will not replace the lost revenue in time to pay debt service installments at December 30, 19X4, and June 30, 19X5, totaling $6 million. ##### [460-10-55-27](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-27) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:d52a51f5ae40337f3c15be4ef251784d4b56e24750e291cd0355a20bc0f04a2e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity B would make the following disclosure. - In 19X0, Entity B guaranteed the Series AA debt of Entity A, which operates a shipping center within Local City. Entity B continues as guarantor of such debt totaling $55 million. In May 19X4, Entity A lost two of its major customers. Although Entity A is directing substantial efforts toward obtaining new customers, it is at least reasonably possible that Entity A will not replace lost revenues sufficient to make its December 19X4 and June 19X5 debt service payments totaling $6 million. If so, Entity B will become responsible for repayment of at least a portion of that amount and possibly additional amounts over the debt term. A liability of $XX has been reported in Entity B's financial statements pending the outcome of Entity A's efforts during the next fiscal year. ### Product Warranties #### Implementation Guidance ##### [460-10-55-28](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-28) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:03ce4e14a02417d9ff0ce9436bbfc9cbf9bf8f920934b4cefffcd04b70585da1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A representation by a manufacturer to its customer that a particular engine would produce a specified savings in its energy consumption qualifies for the scope exception in paragraph [460-10-25-1(b)](https://asc.understandingaccounting.org/asc/460/10/#460-10-25-1) because that representation relates to how efficiently the engine operates. ##### [460-10-55-29](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-29) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:04b5ac8fc740adaa67fcbdad68ec496a54247325edeb7ecd03e31c4eecbc4b2f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In contrast, a service provider's representation as to the quality of its services does not need to qualify for that scope exception because it is a guarantee of the service provider's (guarantor's) future performance and, as such, is excluded from the scope of this Topic by paragraph [460-10-15-7(i)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-7). #### Illustrations ##### [460-10-55-30](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-30) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:a8b33d57f66d5083af562c437f29204a68547bea18e9443d6c3dd2720c2a36af Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the scope of this Topic to a licensee indemnification. ##### [460-10-55-31](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-31) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:1e3253728b76996e39c221bf08de1d8125c28fdce62d00093ca56a60c23e7736 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As an element of its standard commercial terms, a software vendor-licensor includes an indemnification clause in a software licensing agreement that indemnifies the licensee against liability and damages (including legal defense costs) arising from any claims of patent, copyright, trademark, or trade secret infringement by the software vendor's software. That indemnification arrangement constitutes a guarantee that is not subject to the recognition requirements or the initial measurement requirements of the General Subsections of Sections 460-10-25 or 460-10-30, respectively. ##### [460-10-55-32](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-32) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:50968bba0dab3ced7d440dd28c03339956b9b1923c4b4b7dfb08cd69b0b6a469 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. That arrangement exhibits the characteristic in paragraph [460-10-15-4(c)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4): the indemnification obligates the seller-licensor (guarantor) to make a payment to the buyer-licensee (guaranteed party) based on changes in an [underlying](https://asc.understandingaccounting.org/glossary/u/#underlying "A specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, or other variable (including the occurrence or nonoccurrence of a specified event such as a scheduled payment under a contract). An underlying may be a price or rate of an asset or liability but is not the asset or liability itself. An underlying is a variable that, along with either a notional amount or a payment provision, determines the settlement of a derivative instrument.") related to the software license (an asset of the guaranteed party). In this situation, the underlying is the occurrence of an infringement claim against the licensee that results in any liabilities or damages related to the licensed software (the asset) of the licensee (the indemnified party). ##### [460-10-55-33](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-33) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:d57f38b96d8d61318431010d9ebc6d4e92b83078cfab9d7fc9efcd2d460ab6ff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Nonetheless, because a possibility exists, regardless of how remote, that an infringement claim covered by the indemnification could impair the licensee's ability to use the licensed software (for example, if an injunction is issued or the claim is ultimately proven), the underlying is also related to the performance (regarding function, not price) of that licensed software—that is, the licensed software cannot function as intended until the seller-licensor cures the alleged infringement defect. Thus, the arrangement qualifies for the scope exception in paragraph [460-10-25-1(b)](https://asc.understandingaccounting.org/asc/460/10/#460-10-25-1). ##### [460-10-55-34](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-34) Pending content: no Source downloaded (UTC): 2026-09-10T00:29:51.549Z to 2026-09-10T00:29:51.549Z Record version: sha256:ac5a05661a24c69a15b5e3e764b516f7349bf2fecd162b436d7852cacd68db1c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, it would be subject to the disclosure requirements of the [General Subsection](https://asc.understandingaccounting.org/asc/460/10/#50-disclosure) of Section 460-10-50, as well as the disclosure requirements specified in the [Product Warranties Subsection](https://asc.understandingaccounting.org/asc/460/10/#50-disclosure) of that Section.