{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/815/10/#55-implementation-guidance-and-illustrations","source":"FASB Accounting Standards Codification, Basic View","usage":"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.","topic":"815","topic_title":"Derivatives and Hedging","subtopic":"815-10","subtopic_title":"Overall","section":{"number":"55","label":"55 Implementation Guidance and Illustrations","anchor":"55-implementation-guidance-and-illustrations","is_sec":false,"groups":[{"block":null,"heading":"Implementation Guidance","paragraphs":[{"citation":"815-10-55-1","para":"55-1","html":"
This Section provides guidance on the following implementation matters:
  1. a
    Determining whether a contract is within the scope of this Subtopic
  2. b
    Unit of accounting—a transferable option is considered freestanding, not embedded
  3. c
    Definition of derivative instrument
  4. d
    Instruments not within scope
  5. e
    Scope application to certain contracts
  6. f
    Other presentation matters
  7. g
    Synthetic guaranteed investment contracts.
  8. h
    Subparagraph not used.
","snippet":"This Section provides guidance on the following implementation matters:\n(a) Determining whether a contract is within the scope of this Subtopic\n(b) Unit of accounting—a transferable option is considered freestanding, not…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f43d06c792191c35e27fdd8411d0bbed435d33c9e0df7a34d9bfbaf913aa6b45","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-2","para":"55-2","html":"
The following diagram depicts the process for determining whether a freestanding contract is within the scope of this Subtopic. The diagram is a visual supplement to the written standards Sections. It shall not be interpreted to alter any requirements of this Subtopic nor shall it be considered a substitute for the requirements. The relevant paragraphs are identified in the parenthetical note after the question.
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8
Editor's Note: The content of paragraph 815-10-55-2 will change upon transition, together with a change in the heading noted below.
• > Determining Whether a Contract Is within the Scope of This Subtopic
The following diagram depicts the process for determining whether a freestanding contract is within the scope of this Subtopic. The diagram is a visual supplement to the written standards Sections. It shall not be interpreted to alter any requirements of this Subtopic or be considered a substitute for the requirements. The relevant paragraphs are identified in the parenthetical note after the question.
","snippet":"The following diagram depicts the process for determining whether a freestanding contract is within the scope of this Subtopic. The diagram is a visual supplement to the written standards Sections. It shall not be interp…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:103c322a746793c02c4418dc2fff5e1e5cc7b98ba97e7c1eb54cfa6dd57f081e","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-3","para":"55-3","html":"
Certain structured transactions involving the issuance of a bond incorporate transferable options to call or put the bond. As such, those options are potentially exercisable by a party other than the debtor or the investor. For example, certain put bond structures involving three separate parties—the debtor, the investor, and an investment bank—may incorporate options that are ultimately held by the investment bank, giving that party the right to call the bond from the investor. For example, a call option that is transferable either by the debtor to a third party and thus is potentially exercisable by a party other than the debtor or by the original investor based on the legal agreements governing the debt issuance can result in the investor having different counterparties for the option and the original debt instrument. Accordingly, even if incorporated into the terms of the original debt agreement, such an option may not be considered an embedded derivative by either the debtor or the investor because it can be separated from the bond and effectively sold to a third party.
","snippet":"Certain structured transactions involving the issuance of a bond incorporate transferable options to call or put the bond. As such, those options are potentially exercisable by a party other than the debtor or the invest…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:22bcb12e8cb4aa732f8e4aff1308deb4feee3c9fc06896474f83cf1641bcb670","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-4","para":"55-4","html":"
This guidance addresses the following matters:
  1. a
    Notional amount—identifying a commodity contract's notional amount
  2. b
    Initial net investment—initial exchange under currency swap not an initial net investment
  3. c
    Net settlement.
","snippet":"This guidance addresses the following matters:\n(a) Notional amount—identifying a commodity contract's notional amount\n(b) Initial net investment—initial exchange under currency swap not an initial net investment\n(c) Net …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8aa0cf437a47213782c8c7706b2283764d30e797a353498d5ead2e02d1947a4a","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-5","para":"55-5","html":"
Many commodity contracts specify a fixed number of units of a commodity to be bought or sold under the pricing terms of the contract (for example, a fixed price). However, some contracts do not specify a fixed number of units. For example, consider the following four contracts that require one party to buy the following indicated quantities:
  1. a
    Contract 1: As many units as required to satisfy its actual needs (that is, to be used or consumed) for the commodity during the period of the contract (a requirements contract). The party is not permitted to buy more than its actual needs (for example, the party cannot buy excess units for resale).
  2. b
    Contract 2: Only as many units as needed to satisfy its actual needs up to a maximum of 100 units. The party is not permitted to buy more than its actual needs (for example, the party cannot buy excess units for resale).
  3. c
    Contract 3: A minimum of 60 units and as many units needed to satisfy its actual needs in excess of 60 units. The party is not permitted to buy more than its actual needs (for example, the party cannot buy excess units for resale).
  4. d
    Contract 4: A minimum of 60 units and as many units needed to satisfy its actual needs in excess of 60 units up to a maximum of 100 units. The party is not permitted to buy more than its actual needs (for example, the party cannot buy excess units for resale).
","snippet":"Many commodity contracts specify a fixed number of units of a commodity to be bought or sold under the pricing terms of the contract (for example, a fixed price). However, some contracts do not specify a fixed number of …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:872435d4576b72de1b994003b3043436ce3fba44a63a7df55458c1623f2b558b","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-6","para":"55-6","html":"
Generally, the anticipated number of units covered by a requirements contract is equal to the buyer's needs. When a requirements contract is negotiated between the seller and buyer, both parties typically have the same general understanding of the buyer's estimated needs. Given the buyer's often exclusive reliance on the seller to supply all its needs of the commodity, it is imperative from the buyer's perspective that the supplier be knowledgeable with respect to anticipated volumes. In fact, the pricing provisions within requirements contracts are directly influenced by the estimated volumes.
","snippet":"Generally, the anticipated number of units covered by a requirements contract is equal to the buyer's needs. When a requirements contract is negotiated between the seller and buyer, both parties typically have the same g…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:154f04b3f1cfc75835a9a4c6d861572d17097ab05218c39846a11d22806f4141","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-7","para":"55-7","html":"
This guidance focuses solely on whether the contracts under consideration have a notional amount pursuant to the definition in this Subtopic. These types of contracts may not satisfy certain of the other required criteria in this Subtopic for them to meet the definition of a derivative instrument. The conclusion that a requirements contract has a notional amount as defined in this Subtopic can be reached only if a reliable means to determine such a quantity exists. Application of this guidance to specific contracts is as follows:
  1. a
    Contract 1—requirements contract. The identification of a requirements contract's notional amount may require the consideration of volumes or formulas contained in attachments or appendixes to the contract or other legally binding side agreements. The determination of a requirements contract's notional amount must be performed over the life of the contract and could result in the fluctuation of the notional amount if, for instance, the default provisions reference a rolling cumulative average of historical usage. If the notional amount is not determinable, making the quantification of such an amount highly subjective and relatively unreliable (for example, if a contract does not contain settlement and default provisions that explicitly reference quantities or provide a formula based on historical usage), such contracts are considered not to contain a notional amount as that term is used in this Subtopic. One technique to quantify and validate the notional amount in a requirements contract is to base the estimated volumes on the contract's settlement and default provisions. Often the default provisions of requirements contracts will specifically refer to anticipated quantities to utilize in the calculation of penalty amounts in the event of nonperformance. Other default provisions stipulate penalty amounts in the event of nonperformance based on average historical usage quantities of the buyer. If those amounts are determinable, they shall be considered the notional amount of the contract.
  2. b
    Contract 2—requirements contract with a specified maximum quantity. Whether the contract has a notional amount depends. The same considerations discussed in (a) with respect to Contract 1 also apply to Contract 2; however, the notional amount cannot exceed 100 units.
  3. c
    Contract 3—requirements contract with a specified minimum quantity. The contract has a notional amount. The same considerations discussed in (a) with respect to Contract 1 also apply to Contract 3; however, the notional amount of Contract 3 cannot be less than 60 units. A contract that specifies a minimum number of units always has a notional amount at least equal to the required minimum number of units. Only that portion of the requirements contract with a determinable notional amount would be accounted for as a derivative instrument under this Subtopic.
  4. d
    Contract 4—requirements contract with a specified maximum and minimum quantities. The contract has a notional amount. The same considerations discussed in (a) with respect to Contract 1 also apply to Contract 4; however, the notional amount of Contract 4 cannot be less than 60 units or greater than 100 units. A contract that specifies a minimum number of units always has a notional amount at least equal to the required minimum number of units. Only that portion of the requirements contract with a determinable notional amount would be accounted for as a derivative instrument under this Subtopic.
","snippet":"This guidance focuses solely on whether the contracts under consideration have a notional amount pursuant to the definition in this Subtopic. These types of contracts may not satisfy certain of the other required criteri…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f0fba7876da3ee751c91deae181946c49c3edcf4e4afa28c3b4e2c2d079cb213","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-8","para":"55-8","html":"
The definition of a derivative instrument includes contracts that require gross exchanges of currencies (for example, currency swaps that require an exchange of different currencies at both inception and maturity). The initial exchange of currencies of equal fair values in those arrangements does not constitute an initial net investment in the contract. Instead, it is the exchange of one kind of cash for another kind of cash of equal value. The balance of the agreement, a forward contract that obligates and entitles both parties to exchange specified currencies, on specified dates, at specified prices, is a derivative instrument.
","snippet":"The definition of a derivative instrument includes contracts that require gross exchanges of currencies (for example, currency swaps that require an exchange of different currencies at both inception and maturity). The i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e7eae15fb4955d17f885048ea40b86e13c1c3526efe094a4a771c18c71697a14","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-9","para":"55-9","html":"
This guidance addresses the following matters:
  1. a
    Asymmetrical default provision does not constitute net settlement.
  2. b
    Determining whether a structured payout constitutes net settlement.
","snippet":"This guidance addresses the following matters:\n(a) Asymmetrical default provision does not constitute net settlement.\n(b) Determining whether a structured payout constitutes net settlement.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9e3cf44047e6c3d36b8f661b8373c4c0967545d5f46677d2979e7ee4bafa407d","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-10","para":"55-10","html":"
Many commodity forward contracts contain default provisions that require the defaulting party (the party that fails to make or take physical delivery of the commodity) to reimburse the nondefaulting party for any loss incurred as illustrated in the following examples:
  1. a
    If the buyer under the forward contract (Buyer) defaults (that is, does not take physical delivery of the commodity), the seller under that contract (Seller) will have to find another buyer in the market to take delivery. If the price received by Seller in the market is less than the contract price, Seller incurs a loss equal to the quantity of the commodity that would have been delivered under the forward contract multiplied by the difference between the contract price and the current market price. Buyer must pay Seller a penalty for nonperformance equal to that loss.
  2. b
    If Seller defaults (that is, does not deliver the commodity physically), Buyer will have to find another seller in the market. If the price paid by Buyer in the market is more than the contract price, Seller must pay Buyer a penalty for nonperformance equal to the quantity of the commodity that would have been delivered under the forward contract multiplied by the difference between the contract price and the current market price.
","snippet":"Many commodity forward contracts contain default provisions that require the defaulting party (the party that fails to make or take physical delivery of the commodity) to reimburse the nondefaulting party for any loss in…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9b1b8ca63f96d538cb93404029508db5f6ebb3ead33038466e9ad8551e13b065","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-11","para":"55-11","html":"
For example, Buyer agreed to purchase 100 units of a commodity from Seller at $1.00 per unit:
  1. a
    Assume Buyer defaults on the forward contract by not taking delivery and Seller must sell the 100 units in the market at the prevailing market price of $.75 per unit. To compensate Seller for the loss incurred due to Buyer's default, Buyer must pay Seller a penalty of $25.00—that is, 100 units × ($1.00 - $.75).
  2. b
    Similarly, assume that Seller defaults and Buyer must buy the 100 units it needs in the market at the prevailing market price of $1.30 per unit. To compensate Buyer for the loss incurred due to Seller's default, Seller must pay Buyer a penalty of $30.00—that is, 100 units × ($1.30 - $1.00).
","snippet":"For example, Buyer agreed to purchase 100 units of a commodity from Seller at $1.00 per unit:\n(a) Assume Buyer defaults on the forward contract by not taking delivery and Seller must sell the 100 units in the market at t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0142f2709130cae4d3821f2b3b0f897d0b839487d17261ef57eacc0f623f937b","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-12","para":"55-12","html":"
Note that an asymmetrical default provision is designed to compensate the nondefaulting party for a loss incurred. The defaulting party cannot demand payment from the nondefaulting party to realize the changes in market price that would be favorable to the defaulting party if the contract were honored.
","snippet":"Note that an asymmetrical default provision is designed to compensate the nondefaulting party for a loss incurred. The defaulting party cannot demand payment from the nondefaulting party to realize the changes in market …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8b0c011780f196c6e8509bf856d58f07346b32eb555a5a938f38fc731284b14a","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-13","para":"55-13","html":"
Under the forward contract in the example, if Buyer defaults when the market price is $1.10, Seller will be able to sell the units of the commodity into the market at $1.10 and realize a $10.00 greater gain than it would have under the contract. In that circumstance, the defaulting Buyer is not required to pay a penalty for nonperformance to Seller, nor is Seller required to pass the $10.00 extra gain to the defaulting Buyer.
","snippet":"Under the forward contract in the example, if Buyer defaults when the market price is $1.10, Seller will be able to sell the units of the commodity into the market at $1.10 and realize a $10.00 greater gain than it would…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9257d47187602c195c87696677d911754aa6bbe2e1c044fd0a478cc2f656383d","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-14","para":"55-14","html":"
Similarly, if Seller defaults when the market price is $.80, Buyer will be able to buy the units of the commodity in the market and pay $20.00 less than under the contract. In that circumstance, the defaulting Seller is not required to pay a penalty for nonperformance to Buyer, nor is Buyer required to pass the $20.00 savings on to the defaulting Seller.
","snippet":"Similarly, if Seller defaults when the market price is $.80, Buyer will be able to buy the units of the commodity in the market and pay $20.00 less than under the contract. In that circumstance, the defaulting Seller is …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9e404ef6c5336b9b4bacd572fb86dd72000fce1723d28b27ce119bbed8567777","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-15","para":"55-15","html":"
In a forward contract with only an asymmetrical default provision, neither Buyer nor Seller can realize the benefits of changes in the price of the commodity through default on the contract. That is, Buyer cannot realize favorable changes in the intrinsic value of the forward contract except in both of the following circumstances:
  1. a
    By taking delivery of the physical commodity
  2. b
    In the event of default by Seller (which is an event beyond the control of Buyer).
","snippet":"In a forward contract with only an asymmetrical default provision, neither Buyer nor Seller can realize the benefits of changes in the price of the commodity through default on the contract. That is, Buyer cannot realize…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:50ccef9b396ef36d2d0161c4a43d5e8cbfcb591ffe45d709b845e8b9d50aaa58","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-16","para":"55-16","html":"
Similarly, Seller cannot realize favorable changes in the intrinsic value of the forward contract except in either of the following circumstances:
  1. a
    By making delivery of the physical commodity
  2. b
    In the event of default by Buyer, which is an event beyond the control of Seller.
","snippet":"Similarly, Seller cannot realize favorable changes in the intrinsic value of the forward contract except in either of the following circumstances:\n(a) By making delivery of the physical commodity\n(b) In the event of defa…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:67efddb9016257e485459d76502f79d912fd0f6dc55c8bfe394b7c0e3282580d","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-17","para":"55-17","html":"
However, a pattern of having the asymmetrical default provision applied in contracts between certain counterparties would indicate the existence of a tacit agreement between those parties that the party in a loss position would always elect the default provision, thereby resulting in the understanding that there would always be net settlement. In that situation, those kinds of commodity contracts would meet the characteristic described as net settlement in paragraph 815-10-15-100.
","snippet":"However, a pattern of having the asymmetrical default provision applied in contracts between certain counterparties would indicate the existence of a tacit agreement between those parties that the party in a loss positio…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:bea9850a34ec0d52d1388e9482f8b4ed349a9aa6b729c97434c20fdd204f3086","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-18","para":"55-18","html":"
In contrast, a contract that permits only one party to elect net settlement of the contract (by default or otherwise), and thus participate in either favorable changes only or both favorable and unfavorable price changes in the underlying, meets the derivative characteristic described in paragraph 815-10-15-83(c) and discussed in paragraph 815-10-15-100 for all parties to that contract. Such a default provision allows one party to elect net settlement of the contract under any pricing circumstance and consequently does not require delivery of an asset that is associated with the underlying. That default provision differs from the asymmetrical default provision in the example contract in paragraph 815-10-55-10 because it is not limited to compensating only the nondefaulting party for a loss incurred and is not solely within the control of the defaulting party.
","snippet":"In contrast, a contract that permits only one party to elect net settlement of the contract (by default or otherwise), and thus participate in either favorable changes only or both favorable and unfavorable price changes…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2186b9765f6a4529343d966b29c9182532a2b9d5c8c31b1ee4405db73890c877","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-19","para":"55-19","html":"
Paragraph 815-10-15-104 explains that, upon settlement of a contract, in lieu of immediate net cash settlement of the gain or loss under the contract, the holder may receive a financial instrument involving terms that would provide for the gain or loss under the contract to be received or paid over a specified time period. Such a structured payout of the gain on a contract could also be described as an abnormally high yield on a required investment or borrowing in which the overall return is related to the amount of that contract's gain, in which case the contract would be considered to have met the characteristic of net settlement in paragraph 815-10-15-100.
","snippet":"Paragraph 815-10-15-104 explains that, upon settlement of a contract, in lieu of immediate net cash settlement of the gain or loss under the contract, the holder may receive a financial instrument involving terms that wo…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a55601cdd4835bfcd38b85ab1594ea3e3ac1de9c066c04122390cd92ee83a7a1","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-20","para":"55-20","html":"
Assume, instead, that, upon settlement of a contract, in lieu of immediate net cash settlement of the gain or loss under the contract, the holder is required to invest funds in or borrow funds from the other party so that the party in a gain position under the contract can obtain the value of that gain only over time as a traditional adjustment of the yield on the amount invested or the interest element on the amount borrowed. (A fixed-rate mortgage loan commitment is an example of a contract that requires the party in a gain position under the contract to borrow funds at a below-market interest rate at the time of the borrowing to obtain the benefit of that gain.) Paragraph 815-10-15-105 indicates that such a contract does not meet the characteristic of net settlement in paragraph 815-10-15-100.
","snippet":"Assume, instead, that, upon settlement of a contract, in lieu of immediate net cash settlement of the gain or loss under the contract, the holder is required to invest funds in or borrow funds from the other party so tha…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b9ba94b09056301a942d11f95dc7e78a6ff1a8d33089b91ff8821517857f758d","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-21","para":"55-21","html":"
In contrast, paragraph 815-10-15-106 explains that a contract that requires one party to the contract to invest funds in or borrow funds from the other party so that the party in a gain position under the contract can obtain the value of that gain over time as a nontraditional adjustment of the yield on the amount invested or the interest element on the amount borrowed may meet the characteristic of net settlement in paragraph 815-10-15-100. For example, if a contract required the party in a gain position under the contract to invest $100 in the other party's debt instrument that paid an abnormally high interest rate of 5,000 percent per day for a term whose length is dependent on the changes in the contract's underlying, an analysis of those terms would lead to the conclusion that the contract's settlement terms were in substance a structured payout of the contract's gain and thus that contract would be considered to have met the characteristic of net settlement in that paragraph.
","snippet":"In contrast, paragraph 815-10-15-106 explains that a contract that requires one party to the contract to invest funds in or borrow funds from the other party so that the party in a gain position under the contract can ob…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d0211960b471ba70b79ef6cbe8faf822dc7e97d2a88bf7993f51d904c565fc81","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-22","para":"55-22","html":"
This guidance addresses the following matters:
  1. a
    Normal purchases and normal sales—application to power purchase or sales agreements
  2. b
    Dual-trigger financial guarantee contracts
  3. c
    Certain insurance contracts—dual-trigger property and casualty insurance contracts
  4. d
    Derivative instrument that impedes sale accounting
  5. e
    Subparagraph superseded by Accounting Standards Update No. 2012-04.
","snippet":"This guidance addresses the following matters:\n(a) Normal purchases and normal sales—application to power purchase or sales agreements\n(b) Dual-trigger financial guarantee contracts\n(c) Certain insurance contracts—dual-t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2f23082b3fcfe75015c985bcdb5bf148307ff16a2bff40ff60c4f09178066d97","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-23","para":"55-23","html":"
This guidance addresses the following matters:
  1. a
    Contracts that combine a forward contract and a purchased option contract
  2. b
    Distinguishing between options that are capacity contracts and financial options on electricity.
","snippet":"This guidance addresses the following matters:\n(a) Contracts that combine a forward contract and a purchased option contract\n(b) Distinguishing between options that are capacity contracts and financial options on electri…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7a4d501bafebeed7b43337ed2950787e85013907f701bf49a862d2592890f85b","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-24","para":"55-24","html":"
Paragraph 815-10-15-44 states that the inclusion of a purchased option that would, if exercised, require delivery of the related asset at an established price under the contract within a single contract that meets the definition of a derivative instrument disqualifies the entire contract from being eligible to qualify for the normal purchases and normal sales scope exception in this Subsection except as provided in paragraphs
815-10-15-45 through 15-51
with respect to certain power purchase or sales agreements. Although the guidance that follows discusses such circumstances in the context of utilities and independent power producers, it applies to all entities that enter into contracts that combine a forward contract and a purchased option contract, not just to utilities and independent power producers. Some utilities and independent power producers have fuel supply contracts that require delivery of a contractual minimum quantity of fuel at a fixed price and have an option that permits the holder to take specified additional amounts of fuel at the same fixed price at various times. Essentially, that option to take more fuel is a purchased option that is combined with the forward contract in a single supply contract. Typically, the option to take additional fuel is built into the contract to ensure that the buyer has a supply of fuel to produce the electricity during peak demands; however, the buyer may have the ability to sell to third parties the additional fuel purchased through exercise of the purchased option. Due to the difficulty in estimating peak electricity load and thus the amount of fuel needed to generate the required electricity, those fuel supply contracts are common in the electric utility industry (though similar supply contracts may exist in other industries).
","snippet":"Paragraph 815-10-15-44 states that the inclusion of a purchased option that would, if exercised, require delivery of the related asset at an established price under the contract within a single contract that meets the de…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:39e23990b63e568fcd8e0516bcab20cb2cbab8e238a5286b45b4c1d05a10af2a","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-25","para":"55-25","html":"
Those fuel supply contracts are not requirements contracts that are addressed in paragraphs
815-10-55-5 through 55-7
. Many of those contracts meet the definition of a derivative instrument because they have a notional amount and an underlying, require no or a smaller initial net investment, and provide for net settlement (for example, through their default provisions or by requiring delivery of an asset that is readily convertible to cash). The fuel supply contract cannot qualify for the normal purchases and normal sales exception because of the optionality regarding the quantity of fuel to be delivered under the contract.
","snippet":"Those fuel supply contracts are not requirements contracts that are addressed in paragraphs 815-10-55-5 through 55-7. Many of those contracts meet the definition of a derivative instrument because they have a notional am…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:64726f2d6b4d1b4ed38fe63a68a12bb5be09947857842f91717957d7af302cca","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-26","para":"55-26","html":"
An entity shall not bifurcate the forward contract component and the option component of a fuel supply contract that in its entirety meets the definition of a derivative instrument and then assert that the forward contract component is eligible to qualify for the normal purchases and normal sales exception.
","snippet":"An entity shall not bifurcate the forward contract component and the option component of a fuel supply contract that in its entirety meets the definition of a derivative instrument and then assert that the forward contra…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f4507525580572803b1b823cebc09612d57ba21a0ea5307155d56e37d2b479ab","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-27","para":"55-27","html":"
An entity may wish to enter into two separate contracts—a forward contract and an option—that economically achieve the same results as the single derivative instrument and determine whether the normal purchases and normal sales scope exception (as discussed beginning in paragraph 815-10-15-22) applies to the separate forward contract.
","snippet":"An entity may wish to enter into two separate contracts—a forward contract and an option—that economically achieve the same results as the single derivative instrument and determine whether the normal purchases and norma…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2ce796c89b0ae8c033bc42d30d3787d7e7415df1505a27dde8ed6ed94ec886b1","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-28","para":"55-28","html":"
Similar to the contractual options discussed in Example 10 (see paragraph 815-10-55-121), this guidance addresses option components that would require delivery of the related asset at an established price under the contract.
","snippet":"Similar to the contractual options discussed in Example 10 (see paragraph 815-10-55-121), this guidance addresses option components that would require delivery of the related asset at an established price under the contr…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:674481833b71ec174d62264d58f20f187ebe8aa0cfedaa158bdfd57b9a36134a","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-29","para":"55-29","html":"
If the option component does not provide any benefit to the holder beyond the assurance of a guaranteed supply of the underlying commodity for use in the normal course of business and that option component only permits the holder to purchase additional quantities at the market price at the date of delivery (that is, that option component will always have a fair value of zero), that option component would not require delivery of the related asset at an established price under the contract.
","snippet":"If the option component does not provide any benefit to the holder beyond the assurance of a guaranteed supply of the underlying commodity for use in the normal course of business and that option component only permits t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:685ef5fb3242f8fde3921cf050072d016413f3541ca1d6e0ca409a385c48170c","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-30","para":"55-30","html":"
If an entity's single supply contract included at its inception both a forward contract and an option and, in subsequent renegotiations, that contract is negated and replaced by two separate contracts (a forward contract for a specific quantity that will be purchased and an option for additional quantities whose purchase is conditional upon exercise of the option), the new forward contract would be eligible to qualify for the normal purchases and normal sales exception (as discussed beginning in paragraph 815-10-15-22), whereas the new option would not be eligible for that exception. From its inception the new separate option would be accounted for under this Subtopic.
","snippet":"If an entity's single supply contract included at its inception both a forward contract and an option and, in subsequent renegotiations, that contract is negated and replaced by two separate contracts (a forward contract…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3e8e28a51975d2aa362bc65df90bbf02e3fbb4c9bd2d41504b9690aa1d7b919c","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-31","para":"55-31","html":"
The following table lists characteristics of an option that is a capacity contract and a traditional option. The characteristics listed may be relevant to the application of paragraph 815-10-15-45(a)(2). Other characteristics not listed may also be relevant.
","snippet":"The following table lists characteristics of an option that is a capacity contract and a traditional option. The characteristics listed may be relevant to the application of paragraph 815-10-15-45(a)(2). Other characteri…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a1e4ba643bcac48d5c94e30243124ab53387708a1b5a9322884a865320168eef","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-32","para":"55-32","html":"
Entity ABC extends credit to consumers through credit cards and personal loans of various sorts. Entity ABC is exposed to credit losses from its managed asset portfolio, including owned and securitized receivables. Entity ABC would like to purchase an insurance policy to protect itself against high levels of consumer default.
","snippet":"Entity ABC extends credit to consumers through credit cards and personal loans of various sorts. Entity ABC is exposed to credit losses from its managed asset portfolio, including owned and securitized receivables. Entit…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5e267f40119e97b0554ec75c4c96ff7dd19794fc33cdb29ca0774fa6ba7742f7","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-33","para":"55-33","html":"
The proposed insurance policy will entitle Entity ABC to collect claims to the extent that its credit losses exceed a specified minimum level but limited to the amount by which the credit losses on a customized pool or index of consumer loans exceed that same specified minimum level. Thus, Entity ABC will collect claims based on the lesser of the following:
  1. a
    Entity ABC's actual credit losses
  2. b
    The credit losses on a customized pool or index of consumer loans.
","snippet":"The proposed insurance policy will entitle Entity ABC to collect claims to the extent that its credit losses exceed a specified minimum level but limited to the amount by which the credit losses on a customized pool or i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6e12cee7c94d185fe4ace83cb42def6ce55b0ab3a4936e2fa4fcac5f0c976e3a","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-34","para":"55-34","html":"
Although the insurer's payment to Entity ABC may be affected by credit losses on a customized pool, the payment nevertheless represents compensation for actual credit losses Entity ABC incurred. Entity ABC purchases this insurance to obtain a lower premium because claims are limited by external charge-off rates and the insurer is not exposed to Entity ABC's underwriting performance.
","snippet":"Although the insurer's payment to Entity ABC may be affected by credit losses on a customized pool, the payment nevertheless represents compensation for actual credit losses Entity ABC incurred. Entity ABC purchases this…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:37f31eadfaa4069c2267cf938286023ead41f6fbcb92244e14bb55cd93642981","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-35","para":"55-35","html":"
This type of control may also exist in property and casualty reinsurance policies. For example, an insurance entity may purchase reinsurance that covers actual hurricane losses in excess of a specified level in their block of business, but the coverage does not apply to losses in excess of a geographically diversified index of hurricane losses.
","snippet":"This type of control may also exist in property and casualty reinsurance policies. For example, an insurance entity may purchase reinsurance that covers actual hurricane losses in excess of a specified level in their blo…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:bdd5ff9e4f7ecc57676dbbc29f9b54a0580351af073922db769c913f2ef7c7c8","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-36","para":"55-36","html":"
Financial guarantee insurance contracts are not subject to this Subtopic only if all of the conditions in paragraph 815-10-15-58 are met. The description of the financial guarantee insurance contract in paragraph 815-10-55-32 is insufficient for determining whether those conditions are met. The following provisions of that contract represent a type of deductible and do not affect the application of the conditions in paragraph 815-10-15-58:
  1. a
    The provision that limits any claims to the extent that Entity ABC's actual credit losses exceed a specified minimum level
  2. b
    The provision that limits any payments for those claims to the amount by which the credit losses on a customized pool or index of consumer loans exceed that same specified minimum level.
","snippet":"Financial guarantee insurance contracts are not subject to this Subtopic only if all of the conditions in paragraph 815-10-15-58 are met. The description of the financial guarantee insurance contract in paragraph 815-10-…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d3ce46cfbefbc1fc05162ad41629b73e53db2bb96e485abf379a119bfcc420bc","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-37","para":"55-37","html":"
A common characteristic of dual-trigger policies is that the payment of a claim is triggered by the occurrence of two events (that is, the occurrence of both an insurable event and changes in a separate pre-identified variable). Because the likelihood of both events occurring is less than the likelihood of only one of the events occurring, the dual-trigger policy premiums are lower than traditional policies that insure only one of the risks. The policyholder is often purchasing the policy to provide for coverage against a catastrophe because if both events occur, the combined impact may be disastrous to its business.
","snippet":"A common characteristic of dual-trigger policies is that the payment of a claim is triggered by the occurrence of two events (that is, the occurrence of both an insurable event and changes in a separate pre-identified va…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3efa142c65dbcc68d63bdfa9bce6fc19b23ef0e8b1628e3f843ab69aec22bb49","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-38","para":"55-38","html":"
Paragraph 815-10-55-40 addresses seven contracts that illustrate the characteristics of dual-trigger policies offered to different types of policyholders that have different risk management needs. All seven contracts qualify for either the exception in paragraph 815-10-15-53(b) for traditional property and casualty contracts or the exception in paragraph 815-10-15-59(b) for non-exchange-traded contracts involving nonfinancial assets. Therefore, the dual-trigger variable in those contracts is not separated and accounted for separately as a derivative instrument.
","snippet":"Paragraph 815-10-55-40 addresses seven contracts that illustrate the characteristics of dual-trigger policies offered to different types of policyholders that have different risk management needs. All seven contracts qua…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:73b8435531fe7222924c7aed592614ce43f391edac3a6cec1029963b2ae8d176","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-39","para":"55-39","html":"
In contrast, paragraph 815-15-55-12 states that, if a contract issued by an insurance entity involves essentially assured amounts of cash flows based on insurable events that are highly probable of occurrence (as discussed in paragraph 815-10-15-55(c)), an embedded derivative related to changes in the separate pre-identified variable for that portion of the contract would be required to be separately accounted for as a derivative instrument.
","snippet":"In contrast, paragraph 815-15-55-12 states that, if a contract issued by an insurance entity involves essentially assured amounts of cash flows based on insurable events that are highly probable of occurrence (as discuss…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:142f7f1f6ae1c5b65fd040d59c1f0e2de93dc3076da9e66cb7a51fc521fa5a95","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-40","para":"55-40","html":"
Following are descriptions of seven contracts:
  1. a
    Contract A—electric utility. A dual-trigger policy pays for a level of actual losses caused by the following two events occurring simultaneously:
    1. 1
      A power outage resulting from equipment failure or storm-related damage causes more than 500 megawatts of lost power.
    2. 2
      The spot market price for power exceeds $65 per megawatt hour during the storm or equipment-failure period.
    The contract pays the difference between the strike price and the actual market price for the lost power (that is, the cost of replacement power).
  2. b
    Contract B—trucking delivery entity. A dual-trigger policy pays extra expenses associated with rerouting trucks over a certain time period if snowfall exceeds a specified level during that time period. The snowfall causes delays and creates the need to reroute trucks to meet delivery demands.
  3. c
    Contract C—hospital.A dual-trigger policy pays actual medical malpractice claims above a specified level only if the value of the hospital's equity portfolio falls below a specified level during the same period.
  4. d
    Contract D—iron ore mining entity. A dual-trigger policy pays a specified level of workers' compensation claims (not to exceed actual claims) if the claims exceed a specified level at the same time iron ore prices decrease below a specified level.
  5. e
    Contract E—golf resort in Florida. A dual-trigger policy pays property damage from hurricanes incurred by a specific golf resort in Florida; however, the losses are covered only if other golf courses in the region incur hurricane-related losses and the claims cannot exceed the average property damages incurred by the other golf resorts in the county.
  6. f
    Contract F—cherry orchard in Michigan. A dual-trigger policy pays crop losses incurred due to bad weather during growing season, and the claims are at risk of being reduced based on changes in the inflation rate in Brazil. The cherry producer has no operations in Brazil or any transactions in Brazilian currency. However, a Brazilian cherry producer exports cherries to the United States and is a competitor of the Michigan cherry producer.
  7. g
    Contract G—property-casualty reinsurance contract. Reinsurance contracts, which indemnify the holder of the contract (the reinsured) against loss or liability relating to insurance risk, are accounted for under the provisions of Topic 944. Reinsurance contract provisions often adjust the amount at risk or the price of the amount at risk for a number of events or circumstances, such as loss experience or premium volume, while continuing to provide indemnification related to insurance risk. One type of reinsurance contract, an excess contract, provides the reinsured with indemnification against a finite amount of insured losses in excess of a defined level of insured losses retained by the reinsured. Example 11 (see paragraph 815-10-55-132) illustrates a reinsurance contract with a provision that adjusts the retention amount downward based on the performance of a specified equity index.
","snippet":"Following are descriptions of seven contracts:\n(a) Contract A—electric utility. A dual-trigger policy pays for a level of actual losses caused by the following two events occurring simultaneously:\n(1) A power outage resu…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b5bd14666eb913081baebb39418bb81698d2602e7bcf369b8989366e28e42148","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-41","para":"55-41","html":"
The following guidance illustrates application of the scope exception (as discussed beginning in paragraph 815-10-15-63) for a derivative instrument that impedes sales accounting to situations in which the transferor accounts for the transfer as a financing:
  1. a
    If a transferor transfers financial assets but retains a call option on those assets, the net settlement criterion (as discussed beginning in paragraph 815-10-15-119) may be satisfied because the assets transferred are readily obtainable; however, the transfer may fail the isolation criterion in paragraph 860-10-40-5(a) because of significant continued involvement by the transferor. In that example, because the transferor is required to continue to recognize the assets transferred, recognition of the call option on those assets would effectively result in recording the assets twice. Therefore, the derivative instrument is not subject to the scope of this Subtopic.
  2. b
    In the situation described in (a), the transferor may have sold to the transferee a put option. Exercise of the put option by the transferee would result in the transferor repurchasing certain assets that it has transferred, but which it still records as assets in its balance sheet. Because the transferor is required to recognize the borrowing, recognition of the put option would result in recording the liability twice. Therefore, the derivative instrument is not subject to the scope of this Subtopic.
  3. c
    A transferor may transfer fixed-rate financial assets to a transferee and guarantee a variable-rate return. If the transfer is accounted for as a sale and an interest-rate swap is entered into as part of the contractual provisions of the transfer, the transferor records the interest rate swap as one of the financial components. In that case, the interest rate swap should be accounted for separately in accordance with this Subtopic. However, if the transfer is accounted for as a financing, the transferor records on its balance sheet the issuance of variable-rate debt and continues to report the fixed-rate financial assets; no derivative instrument is recognized under this Subtopic.
  4. d
    In a securitization transaction, a transferor transfers $100 of fixed-rate financial assets and the contractual terms of the beneficial interests incorporate an interest rate swap with a notional principal of $1 million. If the transfer is accounted for as a sale and the interest rate swap is entered into as part of the contractual provisions of the transfer, the transferor identifies and records the interest rate swap as one of the financial components. In that case, the interest rate swap would be accounted for separately in accordance with this Subtopic. However, if the transfer is accounted for as a financing, the transferor records in its balance sheet a $100 variable-rate borrowing and continues to report the $100 of fixed-rate financial assets. In this instance, because the liability is leveraged, requiring computation of interest flows based on a $1 million notional amount, the liability (which does not meet the definition of a derivative instrument in its entirety) is a hybrid instrument that contains an embedded derivative—such as an interest rate swap with a notional amount of $999,900. That embedded derivative is not clearly and closely related to the host contract under Section 815-15-25 (see paragraph 815-15-25-1[c]) because it could result in a rate of return on the counterparty's asset that is at least double the initial rate and that is at least twice what otherwise would be the then-current market return for a contract that has the same terms as the host contract and that involves a debtor with credit quality similar to the issuer's credit quality at inception. Therefore, the derivative instrument must be recorded separately under paragraph 815-15-25-1.
","snippet":"The following guidance illustrates application of the scope exception (as discussed beginning in paragraph 815-10-15-63) for a derivative instrument that impedes sales accounting to situations in which the transferor acc…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:30c868326df9dcfbe4050e7dbe64c1821843df5e78112334242bb5b28b44d3bb","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-42","para":"55-42","html":"
Paragraph not used.
","snippet":"Paragraph not used.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d32dfa240cefd3990f86a817e2959492b2d27526010724406094db43228a1223","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-43","para":"55-43","html":"
This guidance illustrates the application of Section 815-10-15 in the following situations:
  1. a
    Contract with payment provision
  2. b
    Credit derivatives
  3. c
    Equity options issued to employees and nonemployees
  4. d
    Subparagraph superseded by Accounting Standards Update No. 2018-07
  5. e
    Repurchase agreements and wash sales
  6. f
    Short sales (sales of borrowed securities)
  7. g
    Take-or-pay contracts.
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8This guidance illustrates the application of Section 815-10-15 in the following situations:
  1. a
  2. b
    Credit derivatives
  3. c
    Equity options issued to employees and nonemployees
  4. d
  5. e
    Repurchase agreements and wash sales
  6. f
    Short sales (sales of borrowed securities)
  7. g
    Take-or-pay contracts.
","snippet":"This guidance illustrates the application of Section 815-10-15 in the following situations:\n(a) Contract with payment provision\n(b) Credit derivatives\n(c) Equity options issued to employees and nonemployees\n(d) Subparagr…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6cb5883a39ff3ddcc82021ce6e5f3001a43e63737288f1f3547b18e1f3d1491d","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-44","para":"55-44","html":"
If the contract contains a payment provision that requires the issuer to pay to the holder a specified dollar amount based on a financial variable, the contract is subject to the requirements of this Subtopic.
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8
Editor's Note: Paragraph 815-10-55-44 will be will be superseded upon transition, together with its heading.
• • > Contract with Payment Provision
Paragraph superseded by Accounting Standards Update No. 2025-07.
","snippet":"If the contract contains a payment provision that requires the issuer to pay to the holder a specified dollar amount based on a financial variable, the contract is subject to the requirements of this Subtopic. Transition…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:83eab411a6d7e93334d49298d1890e3937ad7423b55bded02fd95de9e5e7f549","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-45","para":"55-45","html":"
Many different types of contracts are indexed to the creditworthiness of a specified entity or group of entities, but not all of them are derivative instruments. Credit-indexed contracts that have certain characteristics described in paragraph 815-10-15-58 are guarantees and are not subject to the requirements of this Subtopic. Credit-indexed contracts (often referred to as credit derivatives) that do not have the characteristics necessary to qualify for the exception in that paragraph are subject to the requirements of this Subtopic. One example of the latter is a credit-indexed contract that requires a payment due to changes in the creditworthiness of a specified entity even if neither party incurs a loss due to the change (other than a loss caused by the payment under the credit-indexed contract).
","snippet":"Many different types of contracts are indexed to the creditworthiness of a specified entity or group of entities, but not all of them are derivative instruments. Credit-indexed contracts that have certain characteristics…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9c53be9572eeef451baa871729dfda2d1c9ddc01b13ed693906bae14fc4a909e","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-46","para":"55-46","html":"
Some entities issue stock options to grantees in which the underlying shares are stock of an unrelated entity. Consider the following example:
  1. a
    Entity A awards an option to a grantee.
  2. b
    The terms of the option award provide that, if the grantee continues to provide services to Entity A for 3 years, the grantee may exercise the option and purchase 1 share of common stock of Entity B, a publicly traded entity, for $10 from Entity A.
  3. c
    Entity B is unrelated to Entity A and, therefore, is not a subsidiary or accounted for by the equity method.
","snippet":"Some entities issue stock options to grantees in which the underlying shares are stock of an unrelated entity. Consider the following example:\n(a) Entity A awards an option to a grantee.\n(b) The terms of the option award…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:54a25bb0656c3cf4f2df054a308c023e365fc4fa5a5c81f7c0e64d1182d50f2a","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-47","para":"55-47","html":"
The option award in this example is not within the scope of Topic 718 because the underlying stock is not an equity instrument of the grantor.
","snippet":"The option award in this example is not within the scope of Topic 718 because the underlying stock is not an equity instrument of the grantor.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e8359708194e7d542df44d0ed6f86777144ab9c3838872ef50bbb6ffec1064f8","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-48","para":"55-48","html":"
The option award is not subject to Topic 718. Rather, the option award in the example in paragraph 815-10-55-46 meets the definition of a derivative instrument in this Subtopic and, therefore, should be accounted for by the grantor as a derivative instrument under this Subtopic. After vesting, the option award would continue to be accounted for as a derivative instrument under this Subtopic.
","snippet":"The option award is not subject to Topic 718. Rather, the option award in the example in paragraph 815-10-55-46 meets the definition of a derivative instrument in this Subtopic and, therefore, should be accounted for by …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b4f81cb28bb54ab88669394213615ff6fe8ba28b189693c79e88bd3ce059df4e","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-48A","para":"55-48A","html":"
Paragraphs
718-10-35-9 through 35-14
contain the concept that equity instruments that are granted in share-based payment transactions may initially be subject to that Subtopic, but after certain events or circumstances, those equity instruments may cease being subject to that Subtopic. The terms of an award that ceases to be subject to Topic 718 in accordance with paragraphs
718-10-35-9 through 35-14
should be analyzed to determine whether the award is subject to this Subtopic.
","snippet":"Paragraphs 718-10-35-9 through 35-14 contain the concept that equity instruments that are granted in share-based payment transactions may initially be subject to that Subtopic, but after certain events or circumstances, …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:cfb733a7a1f211c87d165ce3f4a01ec53a304d011a736fe50bf284363e896d46","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-49","para":"55-49","html":"
Paragraph superseded by Accounting Standards Update No. 2018-07.
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Paragraph superseded by Accounting Standards Update No. 2018-07.
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Paragraph superseded by Accounting Standards Update No. 2018-07.
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The exception in paragraph 815-10-15-74(b) does not apply to the holder of those derivative instruments.
","snippet":"The exception in paragraph 815-10-15-74(b) does not apply to the holder of those derivative instruments.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3045575897ed68eb3f88f6da2d23d8aa73c9b49dfc3954bc7b4ce510eb7e8934","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-55","para":"55-55","html":"
Thus, paragraph 815-10-15-75(a) explains that equity instruments (including stock options) received by nonemployees as compensation for goods and services are included in the scope of this Subtopic assuming the contract has all the characteristics of a derivative instrument.
","snippet":"Thus, paragraph 815-10-15-75(a) explains that equity instruments (including stock options) received by nonemployees as compensation for goods and services are included in the scope of this Subtopic assuming the contract …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5e8526c674300ba3b067e3667c6684d54382770815c2402047510f9b6c99e169","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-56","para":"55-56","html":"
Repurchase agreements and wash sales that are accounted for as sales (as described in paragraphs 860-10-55-55 and 860-10-55-57) and in which the transferor is both obligated and entitled to repurchase the transferred asset at a fixed or determinable price contain two separate features, one of which may be a derivative instrument. The initial exchange of financial assets for cash is a sale-purchase transaction—generally not a transaction that involves a derivative instrument. However, the accompanying forward contract that gives the transferor the right and obligation to repurchase the transferred asset involves an underlying and a notional amount (the price of the security and its denomination), and it does not require an initial net investment in the contract. Consequently, if the forward contract requires delivery of a security that is readily convertible to cash or otherwise meets the net settlement criterion as discussed beginning in paragraph 815-10-15-99, it is subject to the requirements of this Subtopic.
","snippet":"Repurchase agreements and wash sales that are accounted for as sales (as described in paragraphs 860-10-55-55 and 860-10-55-57) and in which the transferor is both obligated and entitled to repurchase the transferred ass…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1771956aabb6ce45f38a682207db5dce0133e535b43ec2e9744b8dc242db827b","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-57","para":"55-57","html":"
The following discussion applies only to short sales with the characteristics described. Some groups of transactions that are referred to as short sales may have different characteristics. If so, a different analysis would be appropriate, and other derivative instruments may be involved. Short sales (sales of borrowed securities) typically involve all of the following activities:
  1. a
    Selling a security (by the short seller to the purchaser)
  2. b
    Borrowing a security (by the short seller from the lender)
  3. c
    Delivering the borrowed security (by the short seller to the purchaser)
  4. d
    Purchasing a security (by the short seller from the market)
  5. e
    Delivering the purchased security (by the short seller to the lender).
Those five activities involve three separate contracts.
","snippet":"The following discussion applies only to short sales with the characteristics described. Some groups of transactions that are referred to as short sales may have different characteristics. If so, a different analysis wou…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:965f7f010c7e062917d3c71ae1c1deea9fd42affcece50bb222e2b75b0eabb62","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-58","para":"55-58","html":"
A contract that distinguishes a short sale involves activities in (b) and (e) in the preceding paragraph, borrowing a security and replacing it by delivering an identical security. Such a contract has two of the three characteristics of a derivative instrument. The settlement is based on an underlying (the price of the security) and a notional amount (the face amount of the security or the number of shares), and the settlement is made by delivery of a security that is readily convertible to cash. However, the other characteristic, no initial net investment or an initial net investment that is smaller by more than a nominal amount than would be required for other types of contracts that would be expected to have a similar response to changes in market factors, is not present. (See paragraphs
815-10-15-94 through 15-96
.) The borrowed security is the lender's initial net investment in the contract. Consequently, the contract relating to activities in (b) and in (e) in the preceding paragraph is not a derivative instrument.
","snippet":"A contract that distinguishes a short sale involves activities in (b) and (e) in the preceding paragraph, borrowing a security and replacing it by delivering an identical security. Such a contract has two of the three ch…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0a8fd410850a646f42fa888a966fdaa6276aff520ac87f9caf9a3bd1167c64fc","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-59","para":"55-59","html":"
The other two contracts (one for activities in paragraph 815-10-55-57[a] and in paragraph 815-10-55-57[c] and the other for activity in paragraph 815-10-55-57[d]) are routine and do not generally involve derivative instruments. However, if a forward purchase or forward sale is involved, and the contract does not qualify for the exception in paragraphs
815-10-15-15 through 15-17
, it is subject to the requirements of this Subtopic.
","snippet":"The other two contracts (one for activities in paragraph 815-10-55-57[a] and in paragraph 815-10-55-57[c] and the other for activity in paragraph 815-10-55-57[d]) are routine and do not generally involve derivative instr…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:264fe3dbf7093623cde1e5fb1ad6d93970b9c912d124eaccf591da9a8065cf08","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-60","para":"55-60","html":"
Whether a take-or-pay contract is subject to this Subtopic depends on its terms. For example, if the product to be delivered is not readily convertible to cash and there is no net settlement option, the contract fails to meet the net settlement criterion in paragraph 815-10-15-83(c) and is not subject to the requirements of this Subtopic. In certain circumstances, a take-or-pay contract may represent or contain a lease that should be accounted for in accordance with Topic 842. (Paragraph 815-10-15-79 explains that leases subject to that Topic are not subject to this Subtopic.)
","snippet":"Whether a take-or-pay contract is subject to this Subtopic depends on its terms. For example, if the product to be delivered is not readily convertible to cash and there is no net settlement option, the contract fails to…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6d19c0fc6c67d28bf929d3b5a3e864876f3ac512122678e73b26651217a205e2","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-61","para":"55-61","html":"
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Determining whether realized gains and losses on physically settled derivative instruments not held for trading purposes should be reported in the income statement on a gross or net basis is a matter of judgment that depends on the relevant facts and circumstances. Consideration of the facts and circumstances should be made in the context of the various activities of the entity rather than based solely on the terms of the individual contracts. In evaluating the facts and circumstances for purposes of determining whether an arrangement should be reported on a gross or net basis, all of the following may be considered:
  1. a
    The economic substance of the transaction
  2. b
    The guidance set forth in Topic 845 relative to nonmonetary exchanges
  3. c
    The principal versus agent considerations provided in paragraphs
    606-10-55-36 through 55-40
    .
","snippet":"Determining whether realized gains and losses on physically settled derivative instruments not held for trading purposes should be reported in the income statement on a gross or net basis is a matter of judgment that dep…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b10d8b8d4c40074747b083482cef72c2a169cc79ebd04b76900f7059ebd73d1f","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-63","para":"55-63","html":"
From the perspective of the issuer of the contract, synthetic guaranteed investment contracts are derivative instruments as defined in this Subtopic. Synthetic guaranteed investment contracts contain an underlying, the formula by which interest is calculated, and a notional amount. The interplay between the fair value of a portfolio of segregated assets and a notional amount together determine the amount of the settlement(s), if any, due from the contract issuer, after considering all contract terms. Depending on the specifics of the contract, a synthetic guaranteed investment contract requires either no initial investment or the payment of a risk charge or fee (covering either the entire contract or, more typically, an initial period of the contract). The terms of a synthetic guaranteed investment contract require net settlement because the issuer of the contract makes a payment to the holder equal to the net amount due. For a background discussion of synthetic guaranteed investment contracts, including a comparison with traditional and benefit-responsive guaranteed investment contracts, see paragraph 815-10-05-8. Example 17 (see paragraph 815-10-55-169) illustrates contractual terms of a synthetic guaranteed investment contracts.
","snippet":"From the perspective of the issuer of the contract, synthetic guaranteed investment contracts are derivative instruments as defined in this Subtopic. Synthetic guaranteed investment contracts contain an underlying, the f…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:72046e10f0bd9562297d5d3dcca86c11780ba278316b55c7decfe453ebb60989","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-64","para":"55-64","html":"
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The following Cases illustrate the application of paragraph 815-10-15-6:
  1. a
    Attached call option (Case A)
  2. b
    Transferable call option (Case B).
","snippet":"The following Cases illustrate the application of paragraph 815-10-15-6:\n(a) Attached call option (Case A)\n(b) Transferable call option (Case B).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1eaf65bb6e819e757be2fddabbab1dc55ea5c28b64372ea9a9e4446b6b72cbe1","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-67","para":"55-67","html":"
This Case presents a transaction that involves the addition of a call option contemporaneously with or after the issuance of debt.
","snippet":"This Case presents a transaction that involves the addition of a call option contemporaneously with or after the issuance of debt.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1b70b8bb49ff8be689a0d50af2051ab48eda5ccca5f811738e76d72baaec1bd1","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-68","para":"55-68","html":"
Entity X issues 15-year puttable bonds to an Investment Banker for $102. The put option may be exercised at the end of five years. Contemporaneously, the Investment Banker sells the bonds with an attached call option to Investor A for $100. (The call option is a written option from the perspective of Investor A and a purchased option from the perspective of the Investment Banker.) The Investment Banker also sells to Investor B for $3 the call option purchased from Investor A on those bonds. The call option has an exercise date that is the same as the exercise date on the embedded put option. At the end of five years, if interest rates increase, Investor A would presumably put the bonds back to Entity X, the issuer. If interest rates decrease, Investor B would presumably call the bonds from Investor A.
","snippet":"Entity X issues 15-year puttable bonds to an Investment Banker for $102. The put option may be exercised at the end of five years. Contemporaneously, the Investment Banker sells the bonds with an attached call option to …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e5303ae3b36d98b50105fc631910dfd750d6cf7427423fc307f426ad634b4eb8","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-69","para":"55-69","html":"
As required by paragraph 815-10-15-6, the call option that is attached by the Investment Banker is a separate derivative instrument from the perspective of Investor A.
","snippet":"As required by paragraph 815-10-15-6, the call option that is attached by the Investment Banker is a separate derivative instrument from the perspective of Investor A.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:436a541b198d6f822d1128105d6e04f3a328061ccc5b9c352ee97eb3ec7ba45d","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-70","para":"55-70","html":"
This Case presents a group of transactions with a similar overall effect to that in Case A.
","snippet":"This Case presents a group of transactions with a similar overall effect to that in Case A.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:38e023a7e812a8f2fe21824ddf984111c37345c073eb355a7743f70eb3fa2a37","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-71","para":"55-71","html":"
Entity Y issues 15-year puttable bonds to Investor A for $102. The put option may be exercised at the end of five years. Contemporaneously, Entity Y purchases a transferable call option on the bonds from Investor A for $2. Entity Y immediately sells that call option to Investor B for $3. The call option has an exercise date that is the same as the exercise date of the embedded put option. At the end of five years, if rates increase, Investor A would presumably put the bonds back to Entity Y, the issuer. If rates decrease, Investor B would presumably call the bonds from Investor A.
","snippet":"Entity Y issues 15-year puttable bonds to Investor A for $102. The put option may be exercised at the end of five years. Contemporaneously, Entity Y purchases a transferable call option on the bonds from Investor A for $…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7bc81026208596999a32b873bf1ea33f507bbd88c68f565a16572b94d38d49d0","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-72","para":"55-72","html":"
As required by paragraph 815-10-15-6, the call option is a separate freestanding derivative instrument that must be reported at fair value with changes in value recognized currently in earnings unless designated as a hedging instrument.
","snippet":"As required by paragraph 815-10-15-6, the call option is a separate freestanding derivative instrument that must be reported at fair value with changes in value recognized currently in earnings unless designated as a hed…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e5a8133dbe66a39fcfa6b1b1e0229e32f803fd898acc9dcf0cdb1941f4525b13","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-73","para":"55-73","html":"
This Example illustrates whether a contract meets the criterion in paragraph 815-10-15-83(b) related to initial net investment and therefore meets the definition of a derivative instrument and, if not, whether there is an embedded derivative that warrants separate accounting.
","snippet":"This Example illustrates whether a contract meets the criterion in paragraph 815-10-15-83(b) related to initial net investment and therefore meets the definition of a derivative instrument and, if not, whether there is a…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0c1e5e060c644939ff56ac22c1d9035a682e6b9bd98603ccd19a827390b0d8f0","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-74","para":"55-74","html":"
An entity enters into a forward contract that requires the purchase of 1 share of an unrelated entity's common stock in 1 year for $110 (the market forward price) and at inception of the contract, the entity elects to prepay the contract pursuant to its terms for $105 (the current price of the share of common stock).
","snippet":"An entity enters into a forward contract that requires the purchase of 1 share of an unrelated entity's common stock in 1 year for $110 (the market forward price) and at inception of the contract, the entity elects to pr…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e250812ea1d8f1e2b3f742da60a7801cac9e712bce34331c62e6563c80b8aa91","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-75","para":"55-75","html":"
If no prepayment is made at inception, the contract would meet the criterion in paragraph 815-10-15-83(b) because it does not require an initial net investment but, rather, contains an unexercised election to prepay the contract at inception. If the contract gives the entity the option to prepay the contract at a later date during its 1-year term (at $105 or some other specified amount), exercise of that option would be accounted for as a loan that is repayable at $110 at the end of the forward contract's 1-year term. If, instead, the entity elects to prepay the contract at inception for $105, the contract does not meet the definition of a freestanding derivative instrument. The initial net investment of $105 is equal to the initial price of the 1 share of stock being purchased under the contract and therefore is equal to the investment that would be required for other types of contracts that would be expected to have a similar response to changes in market factors. That is, the initial net investment is equal to the amount that would be exchanged to acquire the asset related to the underlying.
","snippet":"If no prepayment is made at inception, the contract would meet the criterion in paragraph 815-10-15-83(b) because it does not require an initial net investment but, rather, contains an unexercised election to prepay the …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6a43a7bae603391b2c8124f1285176b3aea45bf87a85b0cc6720c27eb34ff9b6","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-76","para":"55-76","html":"
However, the entity must assess whether that nonderivative instrument contains an embedded derivative that, pursuant to paragraph 815-15-25-1, requires separate accounting as a derivative unless the fair value election is made pursuant to paragraph 815-15-25-4. In this instance, the prepaid contract is a hybrid instrument that is composed of a debt instrument as the host contract (that is, a loan that is repayable at $110 at the end of the forward contract's 1-year term) and an embedded derivative based on equity prices. The host contract is a debt instrument because the holder has none of the rights of a shareholder, such as the ability to vote the shares and receive distributions to shareholders. (See paragraph 815-15-25-16.) Unless the hybrid instrument is remeasured at fair value with changes in value recorded in earnings as they occur, the embedded derivative must be separated from the host contract because the economic characteristics and risks of a derivative based on equity prices are not clearly and closely related to a debt host contract, and a separate instrument with the same terms as the embedded derivative would be a derivative instrument subject to the requirements of this Subtopic.
","snippet":"However, the entity must assess whether that nonderivative instrument contains an embedded derivative that, pursuant to paragraph 815-15-25-1, requires separate accounting as a derivative unless the fair value election i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0de7a22e367c951cca5ed5df0ba5e1b7ec90d5eaf429def698b3adb8b3f2ba6e","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-77","para":"55-77","html":"
The following Cases illustrate the determination of an underlying if a commodity contract includes a fixed element and a variable element:
  1. a
    A commodity contract between two parties to transact a fixed quantity at a specified future date at a fixed price (such as the commodity's forward price at the inception of the contract) (Case A)
  2. b
    A commodity contract between two parties to transact a fixed quantity at a specified future date at whatever the prevailing market price might be at that future date (Case B)
  3. c
    A commodity contract having features of both a fixed-price contract and variable-price contract; specifically, an agreement to purchase a commodity in the future at the prevailing market index price at that future date plus or minus a fixed basis differential set at the inception of the contract (Case C).
","snippet":"The following Cases illustrate the determination of an underlying if a commodity contract includes a fixed element and a variable element:\n(a) A commodity contract between two parties to transact a fixed quantity at a sp…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1ad11b399b7f59d8d7c402e0074ddff0e96d4c338698ee0482605dedc6633d3f","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-78","para":"55-78","html":"
Assume that each of the contracts in Cases A, B, and C has the characteristics of notional amount, underlying, and no initial net investment and that the commodity to be delivered is readily convertible to cash as discussed beginning in paragraph 815-10-15-119.
","snippet":"Assume that each of the contracts in Cases A, B, and C has the characteristics of notional amount, underlying, and no initial net investment and that the commodity to be delivered is readily convertible to cash as discus…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:10abfe0d224f13d49cc7b783676ce3ba55f5c665427c9516dffb4ed958400aeb","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-79","para":"55-79","html":"
This fixed-price commodity contract is a derivative instrument because it meets all the criteria in paragraph 815-10-15-83, including having an underlying (namely, the price of the commodity), as required by paragraph 815-10-15-83(a)(1). The contract's fair value will change as the underlying changes because the contract price is not the prevailing market price at the future transaction date. A party to this contract would need to determine if the normal purchases and normal sales exception (see discussion beginning in paragraph 815-10-15-22) applies to the contract.
","snippet":"This fixed-price commodity contract is a derivative instrument because it meets all the criteria in paragraph 815-10-15-83, including having an underlying (namely, the price of the commodity), as required by paragraph 81…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8b18e39cce195fe58c6e2d5b65680adabaa30a3201126c951de4a6d5132990da","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-80","para":"55-80","html":"
This variable-price commodity contract is a derivative instrument because it meets all the criteria in paragraph 815-10-15-83, including having an underlying (namely, the price of the commodity), as required by paragraph 815-10-15-83(a)(1). However, because the contract price is the prevailing market price at the future transaction date, the variable-price commodity contract would not be expected to have a fair value other than zero. A party to this contract would need to determine if the normal purchases and normal sales exception (see discussion beginning in paragraph 815-10-15-22) applies to the contract.
","snippet":"This variable-price commodity contract is a derivative instrument because it meets all the criteria in paragraph 815-10-15-83, including having an underlying (namely, the price of the commodity), as required by paragraph…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9ae292a713e8a725c7a81176fbc63ad5e9a585d21a08ae5fe3686abcda990ccc","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-81","para":"55-81","html":"
In a commodity contract between a buyer and seller of crude oil, the buyer is a refinery that seeks to use the crude oil in the production of unleaded gasoline. The buyer agrees in January to buy 1,000,000 barrels of a specific type of crude oil in July from the seller at the July 1 West Texas Intermediate index price plus $1.00 per barrel. The contract appears to be primarily a variable-price contract, but includes a fixed margin above that price. (If the buyer or the seller no longer wants exposure to fluctuations in the West Texas Intermediate index between January and July, it will separately use the futures market to fix the West Texas Intermediate index portion of the contract.)
","snippet":"In a commodity contract between a buyer and seller of crude oil, the buyer is a refinery that seeks to use the crude oil in the production of unleaded gasoline. The buyer agrees in January to buy 1,000,000 barrels of a s…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9acdb15dda9fe82e55b86821daadea80fe9eb95d84cca0044146bc672112c234","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-82","para":"55-82","html":"
The fixed $1.00 differential is commonly referred to as the basis differential, but it reflects multiple factors, such as timing, quality, and location. If not fixed, the basis differential can be very volatile, because it captures the passage of time (a financing element), changes in relative value of different qualities (or grades) of crude to each other (light versus heavy, sweet versus sour), and changes in the attractiveness of locations from the central pricing hub (Cushing, Oklahoma) relative to each other factor. Supply and demand is a critical factor in influencing the changes in basis due to quality and location; for example, an increase in imports of light crude through the Gulf of Mexico corridor will tend to lower the basis differential for light crude (falling prices due to increased supply) and tend to direct domestic supplies of light crude to northern U.S. locations (because the foreign oil fills southern U.S. demand), lowering the basis differential for contracts calling for delivery at northern points (again due to increased supply in the North). The basis differential therefore is not a simple fixed transport charge, but rather a complex and volatile variable in itself. For this reason, energy traders may specialize solely in trading basis and seeking the most attractive differential at all times relative to the West Texas Intermediate index—fixing and unfixing basis by selling contracts back to counterparties or entering into offsetting contracts with third parties.
","snippet":"The fixed $1.00 differential is commonly referred to as the basis differential, but it reflects multiple factors, such as timing, quality, and location. If not fixed, the basis differential can be very volatile, because …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:66e247c07c9bccc7a497af4b7dc0cb17667da466ee84360980967b890e21b956","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-83","para":"55-83","html":"
The whole mixed-attribute contract is a derivative instrument because the basis differential is a market variable in determining the final transaction price under the contract, and this variable has been fixed in the contract, producing an underlying. (If the differential was a market pricing convention that typically would not be expected to change, the contract would be a derivative instrument with very minor, if any, fluctuations in fair value.) The fact that the base commodity price in the contract is variable will help to mute the fluctuations in fair value of the contract as a whole, but there still will be potential changes in fair value of the overall contract because of the fixed-basis element. A party to this contract would need to determine if the normal purchases and normal sales exception applies to the contract. (Paragraph 815-20-55-47 explains why such a mixed-attribute contract that is a derivative instrument would generally not be sufficiently effective if designated as the sole hedging instrument in a cash flow hedge of the anticipated purchase or sale of the commodity.)
","snippet":"The whole mixed-attribute contract is a derivative instrument because the basis differential is a market variable in determining the final transaction price under the contract, and this variable has been fixed in the con…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2a60860e7ceb9674b77e9495f06b91810bcdc30be93f7349547fcc3d73d94343","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-84","para":"55-84","html":"
As required by paragraphs
815-10-15-110 through 15-118
and
815-10-15-119 through 15-120
, respectively, the evaluation of whether a market mechanism exists and whether items to be delivered under a contract are readily convertible to cash must be performed at inception and on an ongoing basis throughout a contract's life. For example, if a market develops, if an entity effects an initial public offering, or if daily trading volume changes for a sustained period of time, then those events need to be considered in reevaluating whether the contract meets the definition of a derivative instrument. Similarly, if events occur after the inception or acquisition of a contract that would cause a contract that previously met the definition of a derivative instrument to cease meeting the criteria (for example, an entity becomes delisted from a national stock exchange), then that contract cannot continue to be accounted for under this Subtopic. The guidance in paragraphs
815-10-15-125 through 15-127
about assessing the significance of transaction costs is not relevant when determining whether such a contract no longer meets the definition of a derivative instrument.
","snippet":"As required by paragraphs 815-10-15-110 through 15-118 and 815-10-15-119 through 15-120, respectively, the evaluation of whether a market mechanism exists and whether items to be delivered under a contract are readily co…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:82cf442f16d584789016caed3944e76fd257d20ecf69db033a38bbebc31ec019","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-85","para":"55-85","html":"
The following Cases illustrate the importance of ongoing evaluation:
  1. a
    Market mechanism develops after contract inception (Case A).
  2. b
    Initial public offering makes shares readily convertible to cash after contract inception (Case B).
  3. c
    Increased trading activity makes shares readily convertible to cash after contract inception (Case C).
  4. d
    Delisting makes shares not readily convertible to cash after contract inception (Case D).
","snippet":"The following Cases illustrate the importance of ongoing evaluation:\n(a) Market mechanism develops after contract inception (Case A).\n(b) Initial public offering makes shares readily convertible to cash after contract in…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:387360383157ec1bda706634df93ad4ace7ee89b0e0679416e3291c55c692c63","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-86","para":"55-86","html":"
A purchase contract for future delivery of commodity X is entered into and, at the inception of the contract, the market for contracts on commodity X is a relatively thin market, such that brokers do not stand ready to buy and sell the contracts. As time passes, the market for commodity X matures and broker-dealer networks develop. The existence of the broker-dealer market and the ability of the purchaser to be relieved of its rights and obligations under the purchase contract are consistent with the characteristics of a market mechanism as discussed beginning in paragraph 815-10-15-110. Accordingly, the purchase contract will have the characteristics of net settlement as defined by paragraph 815-10-15-110 as broker-dealer networks develop.
","snippet":"A purchase contract for future delivery of commodity X is entered into and, at the inception of the contract, the market for contracts on commodity X is a relatively thin market, such that brokers do not stand ready to b…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6e81a09e036c84ae3879d129923bf9772302b7c62b71e35a1e48c27cf2f4aeca","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-87","para":"55-87","html":"
A nontransferable forward contract on a nonpublic entity's stock that provides only for gross physical settlement is generally not a derivative instrument because the net settlement criteria are not met. If the entity, at some point in the future, accomplishes an initial public offering of its shares and the original contract is still outstanding, the shares to be delivered would be considered to be readily convertible to cash (assuming that the shares under the contract could be rapidly absorbed in the market without significantly affecting the price).
","snippet":"A nontransferable forward contract on a nonpublic entity's stock that provides only for gross physical settlement is generally not a derivative instrument because the net settlement criteria are not met. If the entity, a…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:bd2e18c0afea247deb0e09a46f0eb739c502b78efd845da1d48507fca8a1e4f3","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-88","para":"55-88","html":"
A nontransferable forward contract on a public entity's stock provides for delivery on a single date of a significant number of shares that, at the inception of the contract, would significantly affect the price of the public entity's stock in the market if sold within a few days. As a result, the contract does not satisfy the readily-convertible-to-cash criterion. However, at some later date, the trading activity of the public entity's stock increases significantly. Upon a subsequent evaluation of whether the shares are readily convertible to cash, the number of shares to be delivered would be minimal in relation to the new average daily trading volume such that the contract would then satisfy the net settlement characteristic.
","snippet":"A nontransferable forward contract on a public entity's stock provides for delivery on a single date of a significant number of shares that, at the inception of the contract, would significantly affect the price of the p…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8486ac03b02c71567b7d171052982b1702797be671711a9ce64dc3c3ce74693a","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-89","para":"55-89","html":"
A nontransferable forward contract on a public entity's stock meets the net settlement criteria (as discussed beginning in paragraph 815-10-15-119) in that, at inception of the contract, the shares are expected to be readily convertible to cash when delivered under the contract. Assume that there is no other way that the contract meets the net settlement criteria. The public entity subsequently becomes delisted from the stock exchange, thus causing the shares to be delivered under the contract to no longer be readily convertible to cash.
","snippet":"A nontransferable forward contract on a public entity's stock meets the net settlement criteria (as discussed beginning in paragraph 815-10-15-119) in that, at inception of the contract, the shares are expected to be rea…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:65c26d03ec9e04c2553b9c59a7e71a06666002a89b9e5208762a6edd16e0e55c","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-90","para":"55-90","html":"
This Example illustrates the concept of net share settlement. Entity A has a warrant to buy 100 shares of the common stock of Entity X at $10 a share. Entity X is a privately held entity. The warrant provides Entity X with the choice of settling the contract physically (gross 100 shares) or on a net share basis. The stock price increases to $20 a share. Instead of Entity A paying $1,000 cash and taking full physical delivery of the 100 shares, the contract is net share settled and Entity A receives 50 shares of stock without having to pay any cash for them. (Net share settlement is sometimes described as a cashless exercise.) The 50 shares are computed as the warrant's $1,000 fair value upon exercise divided by the $20 stock price per share at that date.
","snippet":"This Example illustrates the concept of net share settlement. Entity A has a warrant to buy 100 shares of the common stock of Entity X at $10 a share. Entity X is a privately held entity. The warrant provides Entity X wi…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1ca369d93368639865403162e02a873aa4ba9e3c50329040f3ea89d7284670ba","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-91","para":"55-91","html":"
The following Cases illustrate whether an ability to offset constitutes a market mechanism as discussed under paragraph 815-10-15-111(b):
  1. a
    Market mechanism relieves rights and obligations (Case A).
  2. b
    Mechanism to offset does not relieve rights and obligations (Case B).
  3. c
    Mechanism to offset relieves rights and obligations (Case C).
","snippet":"The following Cases illustrate whether an ability to offset constitutes a market mechanism as discussed under paragraph 815-10-15-111(b):\n(a) Market mechanism relieves rights and obligations (Case A).\n(b) Mechanism to of…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:58d7d501eae8d3373d4ef153596c6d336154d3a83178aa3ba5aa330c5fb6eb96","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-92","para":"55-92","html":"
For Cases A and B, assume that the contract would not qualify for the normal purchases and sales exception (as discussed beginning in paragraph 815-10-15-22). Assume also for Cases A and B that the asset associated with the underlying is not readily convertible to cash (as discussed beginning in paragraph 815-10-15-119).
","snippet":"For Cases A and B, assume that the contract would not qualify for the normal purchases and sales exception (as discussed beginning in paragraph 815-10-15-22). Assume also for Cases A and B that the asset associated with …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:104edac9d170e3b36331b08263437a2ecc5ff3ea9bfcdd11d671fd8368320d43","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-93","para":"55-93","html":"
Assume a broker-dealer stands ready to buy and sell a non-exchange-traded commodity forward contract that would relieve either party to the contract of its obligation to make (or right to accept) delivery of the commodity and its right to receive (or obligation to make) payment under the contract by arranging for a broker-dealer to make or accept delivery and paying the broker-dealer a commission plus any difference between the contract price and the current market price of the commodity.
","snippet":"Assume a broker-dealer stands ready to buy and sell a non-exchange-traded commodity forward contract that would relieve either party to the contract of its obligation to make (or right to accept) delivery of the commodit…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9027876421c4d7e62a47dcbc0cd6e43da4e9ac7ca4cd1716f061194f5ac0ad9b","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-94","para":"55-94","html":"
The arrangement is considered a market mechanism under paragraph 815-10-15-110.
","snippet":"The arrangement is considered a market mechanism under paragraph 815-10-15-110.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0ffa9d6f436b9384b9558fdc27a41d1dfa6cff95e2eb3f06a68f711898768f2d","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-95","para":"55-95","html":"
In contrast, an agreement whereby the broker-dealer will merely make (or accept) delivery on behalf of an entity does not relieve the entity of its rights and obligations under the contract and is thereby is not a market mechanism.
","snippet":"In contrast, an agreement whereby the broker-dealer will merely make (or accept) delivery on behalf of an entity does not relieve the entity of its rights and obligations under the contract and is thereby is not a market…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:348b9039e57b6b273d0ddd152837b0a823f51ebb56e3fc401e36113ed296a37b","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-96","para":"55-96","html":"
Entity A contracts to sell a commodity such as iron ore to Entity B at a fixed price, and Entity B offsets its purchase contract by entering into a separate contract to sell the same commodity to Entity C at a different fixed price, instructing Entity A to deliver directly to Entity C. If Entity A fails to deliver to Entity C, Entity C will legally look to Entity B for remedy, not Entity A. Even absent failure to perform, Entity B will still pay Entity A, and Entity C will pay Entity B, even though Entity A may deliver directly to Entity C. Assume the contracts in this series have an underlying and a notional amount and, therefore, they will at any given point in time have a positive or negative fair value.
","snippet":"Entity A contracts to sell a commodity such as iron ore to Entity B at a fixed price, and Entity B offsets its purchase contract by entering into a separate contract to sell the same commodity to Entity C at a different …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:65043ea186fc5061cff84548540acc31748c37f17c5b1ea795d15716cba7439f","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-97","para":"55-97","html":"
The arrangement is not a market mechanism because Entity B is not relieved of its rights and obligations from the original contract. The original contract survives and is not actually sold. The offsetting contract carries a new set of legal rights and obligations; however, those rights and obligations generally offset, rather than relieve, the original contract's set of legal rights and obligations.
","snippet":"The arrangement is not a market mechanism because Entity B is not relieved of its rights and obligations from the original contract. The original contract survives and is not actually sold. The offsetting contract carrie…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5554697ec391599b4272f3436288b518d5f461371bcbc03b4b0c4ea46aa4d75d","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-98","para":"55-98","html":"
A mercantile exchange that trades futures contracts offers a ready opportunity to enter into an offsetting contract that can precisely cancel the rights and obligations of another futures contract (because the counterparty legally is the futures exchange itself), and thus the mercantile exchange does constitute a market mechanism.
","snippet":"A mercantile exchange that trades futures contracts offers a ready opportunity to enter into an offsetting contract that can precisely cancel the rights and obligations of another futures contract (because the counterpar…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fd97ed7ae30f636dc00335f4f11d6f5492f08140382175c9901aac5ad027fbce","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-99","para":"55-99","html":"
The following Cases illustrate consideration of the relevance of daily transaction volumes to the characteristic of net settlement in deciding whether, from the investor's perspective, the convertible bond contains an embedded derivative that must be accounted for separately:
  1. a
    Single bond with multiple conversion options (Case A)
  2. b
    Multiple bonds each having single conversion option (Case B).
","snippet":"The following Cases illustrate consideration of the relevance of daily transaction volumes to the characteristic of net settlement in deciding whether, from the investor's perspective, the convertible bond contains an em…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3130d6b190d681b5d8225257850cab787710ab75b1e2997a3785d6f1464aae9c","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-100","para":"55-100","html":"
The Cases illustrate that the form of the financial instrument is important; paragraph 815-10-15-123 explains that individual instruments cannot be combined for evaluation purposes to circumvent compliance with the criteria beginning in paragraph 815-10-15-119. Further, paragraph 815-10-15-111(c) explains that contracts shall be evaluated on an individual basis, not on an aggregate-holdings basis.
","snippet":"The Cases illustrate that the form of the financial instrument is important; paragraph 815-10-15-123 explains that individual instruments cannot be combined for evaluation purposes to circumvent compliance with the crite…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:898e515ced97b9aa65d8392329ac8366b2334ecfdb14fe80c00d9c9a61624c10","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-101","para":"55-101","html":"
Investor A holds a convertible bond classified as an available-for-sale security under Topic 320. The bond has all of the following additional characteristics:
  1. a
    It is not exchange-traded and can be converted into common stock of the debtor, which is traded on an exchange.
  2. b
    It has a face amount of $100 million and is convertible into 10 million shares of common stock.
  3. c
    It may be converted in full or in increments of $1,000 immediately or at any time during the next 2 years.
  4. d
    If it were converted in a $1,000 increment, Investor A would receive 100 shares of common stock.
","snippet":"Investor A holds a convertible bond classified as an available-for-sale security under Topic 320. The bond has all of the following additional characteristics:\n(a) It is not exchange-traded and can be converted into comm…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8710260925073fc0de614145f53be49f4cf3bb89c149b6d99dc358f729c1276f","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-102","para":"55-102","html":"
Assume further that the market condition for the debtor's stock is such that up to 500,000 shares of its stock can be sold rapidly without the share price being significantly affected.
","snippet":"Assume further that the market condition for the debtor's stock is such that up to 500,000 shares of its stock can be sold rapidly without the share price being significantly affected.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:05ff8c5e0037b97ce41508bb5584bddf9484fe803739904cd89ea9e23f8e7986","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-103","para":"55-103","html":"
The embedded conversion option meets the criteria in paragraph 815-10-15-83(a) through (b) but does not meet the criteria in paragraphs 815-10-15-100 and 815-10-15-110, in part because the option is not traded and it cannot be separated and transferred to another party.
","snippet":"The embedded conversion option meets the criteria in paragraph 815-10-15-83(a) through (b) but does not meet the criteria in paragraphs 815-10-15-100 and 815-10-15-110, in part because the option is not traded and it can…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2702ba0753d534fdbfd111bab6d583f16c35bd833b7f554c2210f1f312d9ad22","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-104","para":"55-104","html":"
It is clear that the embedded equity conversion feature is not clearly and closely related to the debt host instrument.
","snippet":"It is clear that the embedded equity conversion feature is not clearly and closely related to the debt host instrument.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:690516adc092cc48c875b9f754e88960109f7b2c073288f2dc2cb9048194db07","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-105","para":"55-105","html":"
The bond may be converted in $1,000 increments and those increments, by themselves, may be sold rapidly without significantly affecting price, in which case the criteria discussed beginning in paragraph 815-10-15-119 would be met. However, if the holder simultaneously converted the entire bond, or a significant portion of the bond, the shares received could not be readily converted to cash without incurring a significant block discount.
","snippet":"The bond may be converted in $1,000 increments and those increments, by themselves, may be sold rapidly without significantly affecting price, in which case the criteria discussed beginning in paragraph 815-10-15-119 wou…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:831ba6a4581b3f709ae32e7fe93b705da1d25599bc07a3a7f3ab69df20c19063","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-106","para":"55-106","html":"
From Investor A's perspective, the conversion option should be accounted for as a compound embedded derivative in its entirety, separately from the debt host, because the conversion feature allows the holder to convert the convertible bond in 100,000 increments and the shares converted in each increment are readily convertible to cash under the criteria discussed beginning in paragraph 815-10-15-119. Investor A need not determine whether the entire bond, if converted, could be sold without affecting the price.
","snippet":"From Investor A's perspective, the conversion option should be accounted for as a compound embedded derivative in its entirety, separately from the debt host, because the conversion feature allows the holder to convert t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f33b5ee905fa492ee16fa4a91ea8c2c2f402cf5db0bdb4e154b64850e3d0886e","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-107","para":"55-107","html":"
Because the $100 million bond is convertible in increments of $1,000, the convertible bond is essentially embedded with 100,000 equity conversion options, each with a notional amount of 100 shares. Each of the equity conversion options individually has the characteristic of net settlement discussed beginning in paragraph 815-10-15-119 because the 100 shares to be delivered are readily convertible to cash. Because the equity conversion options are not clearly and closely related to the host debt instrument, they must be separately accounted for. However, because an entity cannot identify more than 1 embedded derivative that warrants separate accounting, the 100,000 equity conversion options must be bifurcated as a single compound derivative. (Paragraphs
815-15-25-7 through 25-10
say an entity is not permitted to account separately for more than one derivative feature embedded in a single hybrid instrument.)
","snippet":"Because the $100 million bond is convertible in increments of $1,000, the convertible bond is essentially embedded with 100,000 equity conversion options, each with a notional amount of 100 shares. Each of the equity con…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8e3a2474d2fefcb20523eebaba9d79ca5a6647d42a6edc7d2f94bbeadd0b0475","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-108","para":"55-108","html":"
There is a substantive difference between a $100 million convertible debt instrument that can be converted into equity shares only at one time in its entirety and a similar instrument that can be converted in increments of $1,000 of tendered debt; the analysis of the latter should not presume equality with the former.
","snippet":"There is a substantive difference between a $100 million convertible debt instrument that can be converted into equity shares only at one time in its entirety and a similar instrument that can be converted in increments …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f497b0511dfe86b303499e9ddd9a805e3eede7273e79688005c279da1abbe5b4","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-109","para":"55-109","html":"
Investor B has 100,000 individual $1,000 bonds that each convert into 100 shares of common stock. Assume those bonds are individual instruments but they were issued concurrently to Investor B.
","snippet":"Investor B has 100,000 individual $1,000 bonds that each convert into 100 shares of common stock. Assume those bonds are individual instruments but they were issued concurrently to Investor B.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e498de03bf9c9d05edf452eb26dd2afbc38b77c3b8eac33aaa7e45dc2486c5f2","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-110","para":"55-110","html":"
From Investor B's perspective, the individual bonds each contain an embedded derivative that must be separately accounted for. Each individual bond is convertible into 100 shares, and the market would absorb 100 shares without significantly affecting the price of the stock.
","snippet":"From Investor B's perspective, the individual bonds each contain an embedded derivative that must be separately accounted for. Each individual bond is convertible into 100 shares, and the market would absorb 100 shares w…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ea8192b2a84f0faa52390d3de17bb6361bf095ee755a69d03a0d4b6a6f3ee53e","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-111","para":"55-111","html":"
This Example illustrates the effect of multiple deliveries on the consideration of net settlement described in Section 815-10-15. An entity has a five-year supply contract that obligates it to deliver at a specified price each month a specified quantity of a commodity that has interchangeable (fungible) units and for which quoted prices are available in an active market. However, the quoted prices that are available are for either a spot sale or a forward sale of the commodity with a maturity of 12 months or less. In other words, the forward market for the commodity beyond the next 12 months does not currently exist and is not expected to develop. There are brokers who are willing to take over the rights and obligations relating to the next 12 months of the supply contract, but not for periods beyond the next 12 months. With respect to the active spot market for the commodity, it can rapidly absorb the quantity specified in the supply contract for each individual month but not the total quantity for the entire five-year period in a single transaction (or in multiple transactions over the course of a day or so).
","snippet":"This Example illustrates the effect of multiple deliveries on the consideration of net settlement described in Section 815-10-15. An entity has a five-year supply contract that obligates it to deliver at a specified pric…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6e2f0c896b4be86e7b5b9940cd80c355d534d848fbe95c6c4067df79487dc9cb","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-112","para":"55-112","html":"
The supply contract does not contain a net settlement provision as described in paragraphs
815-10-15-100 through 15-109
.
","snippet":"The supply contract does not contain a net settlement provision as described in paragraphs 815-10-15-100 through 15-109.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9a9aec787642fe3671de1ea0862b6f51477f91d111b2f23b5f6ca2c143748fdd","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-113","para":"55-113","html":"
The 5-year commodity supply contract does not meet the net settlement characteristic in paragraph 815-10-15-110 at its inception because there is no market mechanism to net settle the entire 5-year contract—the forward market exists only for the next 12 months while the contract period is for the next 5 years. Accordingly, there is no market mechanism for the entity to settle the entire contract on a net basis. However, if the contract contained contractually separable increments that individually met the net settlement criteria, those contractually separable increments may be embedded derivatives. In this instance, the brokers in the market will not assume the rights and obligations of the entire contract. Note that the market mechanism in the net settlement characteristic in paragraph 815-10-15-110 relates to whether a party to the contract can be relieved of its rights and obligations under the entire contract, not merely whether an independent broker in the market stands ready to assume the selected rights and obligations.
","snippet":"The 5-year commodity supply contract does not meet the net settlement characteristic in paragraph 815-10-15-110 at its inception because there is no market mechanism to net settle the entire 5-year contract—the forward m…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:29ad601b2c36c91c23dd71db5a1d631318eeda700a906d38005edca73d186ec5","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-114","para":"55-114","html":"
The definition of a derivative instrument in this Subtopic must be applied based on the actual terms of the contract, including its maturity date and the total quantity of the underlying. This Subtopic does not permit bifurcation of a 5-year contract into 5 annual contracts, 60 monthly contracts, or 1,826 daily contracts in an attempt to assert that only a portion of the contract meets the definition of a derivative instrument. To do so would be to disregard one of the critical terms of the contract, that is, the term to the maturity date of the contract.
","snippet":"The definition of a derivative instrument in this Subtopic must be applied based on the actual terms of the contract, including its maturity date and the total quantity of the underlying. This Subtopic does not permit bi…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a929d5f23297cd9dae9458e5451f2558686f4156ac95c3e12631a22b622cf1ca","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-115","para":"55-115","html":"
Based on the guidance in paragraph 815-10-15-3, the five-year commodity supply contract in the example, would, at the beginning of the fifth year, be reevaluated to determine whether the contract meets the net settlement characteristic in paragraph 815-10-15-110 and would likely meet the characteristic because a forward market for the contract would then exist for the remaining term of the contract.
","snippet":"Based on the guidance in paragraph 815-10-15-3, the five-year commodity supply contract in the example, would, at the beginning of the fifth year, be reevaluated to determine whether the contract meets the net settlement…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b437f6cd8a8ae23d2b106ae9db7e55d5acba6ec84909f2a4c8eda321b53430e6","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-116","para":"55-116","html":"
The five-year commodity supply contract meets the net settlement characteristic as discussed beginning in paragraph 815-10-15-119. The criterion discussed beginning in that paragraph is met because an active spot market for the commodity exists today and is expected to be in existence in the future for each delivery date (for example, for quantities to be delivered each day or each month for the next five years) under the multiple delivery supply contract. The spot market can rapidly absorb the quantities specified for each monthly delivery without significantly affecting the price. The fact that the spot market may not be able to absorb within a few days the quantity specified in the entire five-year contract is irrelevant because the performance of the contract is spread out over a five-year period and, therefore, is not expected to occur within a few days.
","snippet":"The five-year commodity supply contract meets the net settlement characteristic as discussed beginning in paragraph 815-10-15-119. The criterion discussed beginning in that paragraph is met because an active spot market …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3e90ec3cbc365d4e3d6713036b7898922630c55c18600fc21436915ec8ed5dee","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-117","para":"55-117","html":"
This Example does not address whether or not the contract would qualify for the normal purchases and normal sales scope exception as discussed beginning in paragraph 815-10-15-22.
","snippet":"This Example does not address whether or not the contract would qualify for the normal purchases and normal sales scope exception as discussed beginning in paragraph 815-10-15-22.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d9d2545188f0e39cc080b633436fbd9037e53b1fe7fe9bdabe767ff171dd5849","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-118","para":"55-118","html":"
This Example illustrates the application of paragraph 815-10-15-17(c). Assume a variety of forward contracts exists for a when-issued security, such as a to-be-announced security, that provides a choice of settlement dates for each of the next three months (such as November, December, or January). An entity enters into a forward contract to purchase the to-be-announced security, which will otherwise meet the qualifications of paragraphs
815-10-15-13 through 15-20
, that requires delivery in the second-nearest month (such as December), not the nearest month (such as November). The entity may not apply the regular-way security trade exception to the forward purchase contract that requires delivery of the to-be-announced security in the second-nearest month (such as December).
","snippet":"This Example illustrates the application of paragraph 815-10-15-17(c). Assume a variety of forward contracts exists for a when-issued security, such as a to-be-announced security, that provides a choice of settlement dat…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:756892174303047c54be08d10287653a2968b70dc16d6ceeb502b7e002a9e246","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-119","para":"55-119","html":"
In this Example, the to-be-announced security (identified by issuer, contractual maturity of the underlying loans, and the net coupon, such as 30-year Government National Mortgage Association [GNMA] securities bearing interest of 7 percent) is available under multiple settlement periods (that is, the standardized settlement date in November, December, or January). The regular-way security trade exception may be applied only to forward contracts for that to-be-announced security that require delivery in November, the shortest period permitted for that type of to-be-announced security. The December and January settlement to-be-announced forward contracts must be accounted for as derivative instruments under this Subtopic.
","snippet":"In this Example, the to-be-announced security (identified by issuer, contractual maturity of the underlying loans, and the net coupon, such as 30-year Government National Mortgage Association [GNMA] securities bearing in…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:94c1744413eb663e5c55d0f69d2971e93a58320bf008d9afdade13ad4b6cfc93","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-120","para":"55-120","html":"
If the forward contracts in this Example meet the hedge accounting criteria, they may be designated in cash flow hedges of the anticipated purchase of the securities, as discussed in paragraph 815-20-25-22.
","snippet":"If the forward contracts in this Example meet the hedge accounting criteria, they may be designated in cash flow hedges of the anticipated purchase of the securities, as discussed in paragraph 815-20-25-22.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:170e63aaa027ef90336d685fa415a61541c17dce35107eda7469ffaf1358c0f2","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-121","para":"55-121","html":"
In some circumstances, an option may be combined with a forward contract. In some instances, the optionality feature in the forward contract can modify the quantity of the asset to be delivered under the contract. In other cases, the optionality feature in the forward contract can modify only the price to be paid or the timing of the delivery.
","snippet":"In some circumstances, an option may be combined with a forward contract. In some instances, the optionality feature in the forward contract can modify the quantity of the asset to be delivered under the contract. In oth…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:860dbb10ab6251dbbeea3e76c84500c0eb27d3dc372f48906368ee246b4bb0e9","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-122","para":"55-122","html":"
This Example presents three Cases of forward contracts with optionality features:
  1. a
    Optionality feature involving price floor (cash-settled put option) written by purchaser and price cap (cash-settled call option) written by seller (Case A)
  2. b
    Optionality feature involving cash-settled put option written by purchaser (Case B)
  3. c
    Optionality feature involving physically settled put option written by purchaser (Case C).
","snippet":"This Example presents three Cases of forward contracts with optionality features:\n(a) Optionality feature involving price floor (cash-settled put option) written by purchaser and price cap (cash-settled call option) writ…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:06a3a5c12246acaa367a923b0e9453616a8c62b8f196975684a07d4110a831e9","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-123","para":"55-123","html":"
In Cases A, B, and C, the optionality feature must be analyzed to determine whether it could modify the quantity of the asset to be delivered under the contract. In doing so, the conclusion as to whether the contract is eligible for the normal purchases and normal sales scope exception applies in the same way to both counterparties—the purchaser and the writer of the option (within the forward contract).
","snippet":"In Cases A, B, and C, the optionality feature must be analyzed to determine whether it could modify the quantity of the asset to be delivered under the contract. In doing so, the conclusion as to whether the contract is …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7a7c4e7116876f1a7e9e6520fe1693a488a8275084b15e4f82faf63b49cb9738","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-124","para":"55-124","html":"
The contracts addressed in this Example do not have a price based on an underlying that is not clearly and closely related to the asset being purchased, nor do they require cash settlement of gains or losses as stipulated in paragraph 815-10-15-22.
","snippet":"The contracts addressed in this Example do not have a price based on an underlying that is not clearly and closely related to the asset being purchased, nor do they require cash settlement of gains or losses as stipulate…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:aab8df5a77be6699e88fd4e8eeaf89e17cdf00a7e4b65a33aa4868f1b63d8b6a","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-125","para":"55-125","html":"
Paragraph 815-10-15-43 explains that, if the optionality feature in the forward contract can modify the quantity of the asset to be delivered under the contract, but that option feature has expired or has been completely exercised (even if delivery has not yet occurred), there is no longer any uncertainty as to the quantity to be delivered under the forward contract. That paragraph explains that, following such expiration or exercise, the forward contract would be eligible for designation as a normal purchase or normal sale, provided that the other conditions in paragraph 815-10-15-22 are met.
","snippet":"Paragraph 815-10-15-43 explains that, if the optionality feature in the forward contract can modify the quantity of the asset to be delivered under the contract, but that option feature has expired or has been completely…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4702a00c6b042760b8e3f769f3780d855a7046c9ff55e356c7ed09d87292d9ac","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-126","para":"55-126","html":"
Entity A enters into a forward contract to purchase on a specified date a specified quantity of a raw material that is readily convertible to cash. The purchase price is the current market price on the date of purchase, not to exceed a specified maximum price (a cap) nor to be less than a specified minimum price (a floor).
","snippet":"Entity A enters into a forward contract to purchase on a specified date a specified quantity of a raw material that is readily convertible to cash. The purchase price is the current market price on the date of purchase, …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ee6c29ca4b314dae9aa9737452d5ded4a40f248a12530d37ffa3dc311eb4755c","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-127","para":"55-127","html":"
In this Case, the optionality feature cannot modify the quantity to be delivered; thus, the contract is eligible to qualify for the normal purchases and normal sales scope exception.
","snippet":"In this Case, the optionality feature cannot modify the quantity to be delivered; thus, the contract is eligible to qualify for the normal purchases and normal sales scope exception.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:bfa93fa056f42af2a2d791c39530684f0bb91ea54eb9045dc0fa1effbfb6c606","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-128","para":"55-128","html":"
Entity B enters into a forward contract to purchase on a specified date a specified quantity of a raw material that is readily convertible to cash. The contract's purchase price is a fixed amount per unit that is below the current forward price; however, if the market price on the date of purchase has fallen below a specified level, Entity B's purchase price would be adjusted to a higher fixed amount significantly in excess of the current forward price at the inception of the contract. (The contract entered into by Entity B is a compound derivative consisting of a forward contract to purchase raw material at the original fixed price and a written option that obligates Entity B to purchase the raw material for the higher adjusted price if the market price of the raw material falls below the specified level. In exchange for the written option, Entity B received a premium representing the difference between the purchase price in the contract and the forward market price of the raw material at the inception of the contract.)
","snippet":"Entity B enters into a forward contract to purchase on a specified date a specified quantity of a raw material that is readily convertible to cash. The contract's purchase price is a fixed amount per unit that is below t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:03dce91301cebd8fb19423bf618f6baaf2a832759a1f27b5549826d7b5244b10","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-129","para":"55-129","html":"
The forward purchase contract in this Case is eligible to qualify for the normal purchases and normal sales scope exception because the optionality feature in the contract cannot modify the quantity to be delivered.
","snippet":"The forward purchase contract in this Case is eligible to qualify for the normal purchases and normal sales scope exception because the optionality feature in the contract cannot modify the quantity to be delivered.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6ac3ed4dc80da5a0fe4dc8a0413f5b28dca3f66302d8311cc969d256136678d5","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-130","para":"55-130","html":"
Entity C enters into a forward contract to purchase on a specified date a specified quantity of a raw material that is readily convertible to cash. The contract's purchase price is a fixed amount per unit that is below the current forward price. However, if the market price on the date of purchase has fallen below a specified level that is below the contract's fixed purchase price, Entity C would be required to purchase a specified additional quantity of the raw material at the contract's fixed purchase price (which is above the current market price on the date of purchase). (The contract entered into by Entity C is a compound derivative consisting of a forward contract to purchase raw material at the original fixed price and a written option that obligates Entity C to purchase additional quantities of the raw material at an above-market price if the market price of the raw material falls below the specified level.)
","snippet":"Entity C enters into a forward contract to purchase on a specified date a specified quantity of a raw material that is readily convertible to cash. The contract's purchase price is a fixed amount per unit that is below t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:27e62f73c66ea84699a14ab9ac61bc93719fb5307ecfde98aaa45ca007005df9","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-131","para":"55-131","html":"
The contract in this Case is not eligible to qualify for the normal purchases and normal sales scope exception because the optionality feature in the contract can modify the quantity of the asset to be delivered under the contract.
","snippet":"The contract in this Case is not eligible to qualify for the normal purchases and normal sales scope exception because the optionality feature in the contract can modify the quantity of the asset to be delivered under th…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e7ea390bea1926528121c23c2a7841d3a5180222b3f4edc3636243dc7b751552","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-132","para":"55-132","html":"
This Example illustrates a reinsurance contract with a provision that adjusts the retention amount downward based on the performance of a specified equity index as discussed in paragraph 815-10-55-40(g). Reinsurer enters into a reinsurance contract with Reinsured to indemnify Reinsured for certain insured losses in excess of a defined retention. The intent of the coverage is to protect Reinsured from significant or catastrophic property-casualty losses. The coverage would include a retention amount that would be adjusted downward according to a scale tied to the Dow Jones Industrial Average. If a catastrophic loss occurs, Reinsured would likely have to liquidate some of its investment holdings (bonds or equities) to pay its losses, which exposes Reinsured to significant investment risk in a down market. The adjustment feature provides protection against investment risk by allowing Reinsured to recover more losses in a declining investment market. Reinsured has no ability to receive appreciation in the Dow Jones Industrial Average.
  1. a
    Parties: Reinsurer and Reinsured
  2. b
    Coverage: Property losses
  3. c
    Period: January 1, X1, through December 31, X1
  4. d
    Retention: $20 million per occurrence, adjusted downward in the same percentage as period-to-date (from January 1, X1, to measurement date) decreases in the Dow Jones Industrial Average, not to exceed 50%
  5. e
    Limit: $15 million per occurrence, $15 million per annum
  6. f
    Premium: $1.4 million per annum.
","snippet":"This Example illustrates a reinsurance contract with a provision that adjusts the retention amount downward based on the performance of a specified equity index as discussed in paragraph 815-10-55-40(g). Reinsurer enters…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b6aab80414cda7c634b95982fc2d5ce48fd04bd6685071b77244bb56afe2dc71","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-133","para":"55-133","html":"
Both of the following scenarios assume that the Dow Jones Industrial Average on January 1, X1, was 10,000.
","snippet":"Both of the following scenarios assume that the Dow Jones Industrial Average on January 1, X1, was 10,000.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4c2df148d38a9b6bfb7cbe237bc809659bb54842912daecad8bd0d9009c1617a","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-133A","para":"55-133A","html":"
As discussed in paragraph 815-10-55-38, the contract qualifies for the exception in paragraph 815-10-15-53(b) for traditional property and casualty contracts and, so, the dual-trigger variable in the contract is not separated and accounted for separately as a derivative instrument.
","snippet":"As discussed in paragraph 815-10-55-38, the contract qualifies for the exception in paragraph 815-10-15-53(b) for traditional property and casualty contracts and, so, the dual-trigger variable in the contract is not sepa…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4b8e4d912db5388b78af8d76f8543f37ea1a5d097cfa381647cbf2949c131a57","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-134","para":"55-134","html":"
This Example illustrates the guidance in paragraph 815-10-15-55(c) for a contract involving essentially assured amounts. Insured Entity has received at least $2 million in claim payments from its insurance entity (or at least $2 million in claim payments were made by the insurance entity on the insured entity's behalf) for each of the previous 5 years related to specific types of insured events that occur each year. That minimum level of coverage would not qualify for the insurance contract scope exclusion.
","snippet":"This Example illustrates the guidance in paragraph 815-10-15-55(c) for a contract involving essentially assured amounts. Insured Entity has received at least $2 million in claim payments from its insurance entity (or at …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:92ac63e7d2c5bcea3c45a3d2b00eccfb5a80c7b3575f29b75cc10ca7a582205a","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-135","para":"55-135","html":"
The following Cases illustrate the difference between physical and financial variables for purposes of applying the scope exception in paragraph 815-10-15-59(a):
  1. a
    Contract containing both a physical variable and a financial variable (Case A)
  2. b
    Contract containing only a physical variable (Case B)
  3. c
    Contract containing only a financial variable (Case C).
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8
Editor's Note: The heading that precedes paragraph 815-10-55-135 will be amended upon transition as shown below. The content of the paragraph will not change.
•> Example 13: Certain Contracts That Are Not Traded on an Exchange—Distinguishing between Physical and Financial Variables
The following Cases illustrate the difference between physical and financial variables for purposes of applying the scope exception in paragraph 815-10-15-59(a):
  1. a
    Contract containing both a physical variable and a financial variable (Case A)
  2. b
    Contract containing only a physical variable (Case B)
  3. c
    Contract containing only a financial variable (Case C).
","snippet":"The following Cases illustrate the difference between physical and financial variables for purposes of applying the scope exception in paragraph 815-10-15-59(a):\n(a) Contract containing both a physical variable and a fin…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c230532bca4dc42b0d20c0cd161d328a8d6723fe6c8c4c1ff9a713afd25de171","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-136","para":"55-136","html":"
A contract's payment provision specifies that the issuer will pay to the holder $10,000,000 if aggregate property damage from all hurricanes in the state of Florida exceeds $50,000,000 during the year 2001.
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8
Editor's Note: The content of paragraph 815-10-55-136 will change upon transition, together with a change in the heading noted below.
••> Case A: Contract Containing both a Physical Variable and a Financial Variable
A contract's payment provision specifies that the issuer will pay to the holder $10,000,000 if aggregate property damage from all hurricanes in the state of Florida exceeds $50,000,000 during the year 2001.
","snippet":"A contract's payment provision specifies that the issuer will pay to the holder $10,000,000 if aggregate property damage from all hurricanes in the state of Florida exceeds $50,000,000 during the year 2001. Transition da…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9d93afe905932ae3c804329f4501fa34f020fd6967be8442b0c1534ea9801e8d","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-137","para":"55-137","html":"
In this Case, the payment under the contract occurs if aggregate property damage from all hurricanes in the state of Florida exceeds $50,000,000 during the year 2001. The contract contains 2 underlyings—a physical variable (that is, the occurrence of at least 1 hurricane) and a financial variable (that is, aggregate property damage exceeding a specified or determinable dollar limit of $50,000,000). Because of the presence of the financial variable as an underlying, the derivative instrument does not qualify for the scope exclusion in paragraph 815-10-15-59(a).
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8If the contract contains a payment provision that requires the issuer to pay to the holder a specified dollar amount based on a financial variable, the contract is subject to the requirements of this Subtopic. In this Case, the payment under the contract occurs if aggregate property damage from all hurricanes in the state of Florida exceeds $50,000,000 during the year 2001. The contract contains 2 underlyings—a physical variable (that is, the occurrence of at least 1 hurricane) and a financial variable (that is, aggregate property damage exceeding a specified or determinable dollar limit of $50,000,000). Because of the presence of the financial variable as an underlying, the derivative instrument does not qualify for the scope exclusion in paragraph 815-10-15-59(a).
","snippet":"In this Case, the payment under the contract occurs if aggregate property damage from all hurricanes in the state of Florida exceeds $50,000,000 during the year 2001. The contract contains 2 underlyings—a physical variab…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d10935a1ca717b34cd27db5d90f18594bb2f2921cea6e18d6936b2facb5b2d6c","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-138","para":"55-138","html":"
A contract specifies that the issuer pays the holder $10,000,000 in the event that a hurricane occurs in Florida in 2001.
","snippet":"A contract specifies that the issuer pays the holder $10,000,000 in the event that a hurricane occurs in Florida in 2001.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f99d88d297eb4f6980a334c15a580c548c53d8c75fea88a46d4d8b4fa06d816b","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-139","para":"55-139","html":"
If a contract contains a payment provision that requires the issuer to pay to the holder a specified dollar amount that is linked solely to a climatic or other physical variable (for example, wind velocity or flood-water level), paragraph 815-10-15-59(a) provides that the contract is not subject to the requirements of this Subtopic.
","snippet":"If a contract contains a payment provision that requires the issuer to pay to the holder a specified dollar amount that is linked solely to a climatic or other physical variable (for example, wind velocity or flood-water…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4405de799eb14dcfa3d645cdb65f58b4111d433d925694c7df9879d33f8b1b84","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-140","para":"55-140","html":"
In this Case, the payment provision is triggered if a hurricane occurs in Florida in 2001. The underlying is a physical variable (that is, occurrence of a hurricane). Therefore, the contract qualifies for the scope exclusion in paragraph 815-10-15-59(a).
","snippet":"In this Case, the payment provision is triggered if a hurricane occurs in Florida in 2001. The underlying is a physical variable (that is, occurrence of a hurricane). Therefore, the contract qualifies for the scope exclu…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1400021ee428cb582217bbd57b612eff1db4c376beff822bcea1048aff09616d","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-141","para":"55-141","html":"
A contract would be a traditional insurance contract that is excluded from the scope of this Subtopic under the exception discussed beginning in paragraph 815-10-15-52if the contract requires a payment only if the holder incurs a decline in revenue or an increase in expense as a result of an event (for example, a hurricane) and the amount of the payoff is solely compensation for the amount of the holder's loss.
","snippet":"A contract would be a traditional insurance contract that is excluded from the scope of this Subtopic under the exception discussed beginning in paragraph 815-10-15-52if the contract requires a payment only if the holder…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6add083c53369b6a3f3e125b60237586a3a821f06ed5168e4f923d1739463dea","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-142","para":"55-142","html":"
This Example addresses the application of the scope exception in paragraph 815-10-15-59(b). Entity A enters into a non-exchange-traded forward contract to buy from Entity B 100 interchangeable (fungible) units of a nonfinancial asset that are not readily convertible to cash. The contract permits net settlement through its default provisions. Entity A already owns more than 100 units of that nonfinancial asset, but Entity B does not own any units of that nonfinancial asset.
","snippet":"This Example addresses the application of the scope exception in paragraph 815-10-15-59(b). Entity A enters into a non-exchange-traded forward contract to buy from Entity B 100 interchangeable (fungible) units of a nonfi…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a181b4f4008b62a6dbf0e0558e04b25eb2db84d4e85345208f4aafd5e097e8ea","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143","para":"55-143","html":"
The scope exception in paragraph 815-10-15-59(b) does not apply to the accounting for the contract for both of the following reasons:
  1. a
    The contract's settlement is based on an underlying associated with a nonfinancial asset that is not unique (because it is based on the price or value of an interchangeable, nonfinancial unit).
  2. b
    The entity that owns the nonfinancial asset related to the underlying (that is, Entity A) is the buyer of the units and thus would benefit from the forward contract if the price or value increases.
Consequently, neither Entity A nor Entity B qualifies for the scope exception in paragraph 815-10-15-59(b).
","snippet":"The scope exception in paragraph 815-10-15-59(b) does not apply to the accounting for the contract for both of the following reasons:\n(a) The contract's settlement is based on an underlying associated with a nonfinancial…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:97c111ad26c52d126f92e09ece13c4a74d142cd7edeecaec206380647ffcab1e","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143A","para":"55-143A","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8The following Cases illustrate application of the scope exception in paragraph 815-10-15-59(e):
  1. a
    Research and Development Funding Arrangement—Underlyings based on the occurrence of regulatory approval and achieving an earnings target (Case A)
  2. b
    Monetization Transaction—Underlyings based on the occurrence of regulatory approval and achieving a sales target (Case B)
  3. c
    Sustainability-Linked Bond—Underlying based on the failure to meet a greenhouse gas emissions reduction target (Case C)
  4. d
    Litigation Funding Arrangement between Litigant and Funder—Underlying based on the occurrence of a successful litigation outcome (Case D)
  5. e
    Litigation Funding Arrangement between Law Firm and Funder—Underlying based on the occurrence of a successful litigation outcome (Case E)
  6. f
    Commodities-Based Arrangement—Underlying based on a market price of gold (Case F)
  7. g
    Variable Payment Arrangement—Underlying based on the occurrence of regulatory approval (Case G)
  8. h
    Earnout Arrangement—Underlying based on earnings activity (Case H)
  9. i
    Variable Payment Arrangement—Underlying based on stock price differential (Case I)
  10. j
    Credit Default Swap Arrangement—Underlying based on the occurrence of a credit event by the reference entity (Case J).
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8The following Cases illustrate application of the scope exception in paragraph 815-10-15-59(e):\n(a) Research and Development Fund…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:51df2ce3740ba75645998b6224d9cd689a41e318d2dc932278ef87faeef7a257","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143B","para":"55-143B","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8Entity A and Entity B enter into a research and development funding arrangement. Under the arrangement, Entity B provides funding of $50 million so that Entity A may develop and commercialize a drug compound. The arrangement has no clawback feature. Upon regulatory approval of the drug, Entity A pays $20 million to Entity B. Once the drug is commercialized, Entity A pays an additional $80 million to Entity B when gross profit related to the drug exceeds $500 million.
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8Entity A and Entity B enter into a research and development funding arrangement. Under the arrangement, Entity B provides funding…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:54ea16fdd550d10be1629d3be57c7b1c0bfc71c75f68afca3ef0b5f1b7aeea89","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143C","para":"55-143C","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8The arrangement contains 2 underlyings: the occurrence of regulatory approval and an earnings measure (gross profit related to the drug exceeding $500 million). Because the occurrence of regulatory approval and gross profit relate to the drug that Entity A is developing, both of the underlyings are based on the operations or activities of Entity A. Whether the occurrence of regulatory approval is within the control of Entity A does not impact the conclusion that the underlying qualifies for the scope exception. Neither underlying is based on a market rate, market price, market index, or the price or performance (including default) of a financial asset or financial liability of one of the parties to the contract as described in paragraph 815-10-15-59(e)(1) and (e)(2). Also, the exclusions related to contracts involving an entity’s own equity or call options and put options on debt instruments as described in paragraph 815-10-15-59(e)(3) and (e)(4) do not apply. Therefore, those two underlyings each qualify for the scope exception in paragraph 815-10-15-59(e).
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8The arrangement contains 2 underlyings: the occurrence of regulatory approval and an earnings measure (gross profit related to th…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b2b326e03f5470775739be17a545eb09a213b88b10cfbf260f6c4e5e85579e6a","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143D","para":"55-143D","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8Entity A licenses its intellectual property to a third party to develop and commercialize a drug compound. While Entity A is not involved in the development and commercialization activities of the drug compound, the third party has agreed to pay Entity A (a) $20 million upon regulatory approval of the drug and (b) future royalties based on sales of the drug once the drug is commercialized. Entity A separately enters into an arrangement with Entity B. Under this arrangement, Entity B pays $50 million to Entity A in exchange for the right to receive a portion of both the (a) $20 million payment upon regulatory approval of the drug and (b) future royalties based on sales of the drug. Entity B is involved in the arrangement solely for investment purposes and is not involved in the development and commercialization of the drug.
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8Entity A licenses its intellectual property to a third party to develop and commercialize a drug compound. While Entity A is not …","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a5e05a490f009a4a1215841253821db6e5c27fb679362a6834195e758cd336ff","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143E","para":"55-143E","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8The evaluation of the scope exception in this Example focuses on the arrangement between Entity A and Entity B. That arrangement contains two underlyings: the occurrence of regulatory approval and sales of the drug. Both of the underlyings are based on the operations or activities of Entity A because in this arrangement Entity A licenses the intellectual property and receives licensing income for both the regulatory approval payment and the royalties from sales of the drug. Whether the occurrence of regulatory approval is within the control of Entity A does not impact the conclusion that the underlying qualifies for the scope exception. Neither underlying is based on a market rate, market price, market index, or the price or performance (including default) of a financial asset or financial liability of one of the parties to the contract as described in paragraph 815-10-15-59(e)(1) and (e)(2). Also, the exclusions related to contracts involving an entity’s own equity or call options and put options on debt instruments as described in paragraph 815-10-15-59(e)(3) and (e)(4) do not apply. Therefore, those two underlyings each qualify for the scope exception in paragraph 815-10-15-59(e).
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8The evaluation of the scope exception in this Example focuses on the arrangement between Entity A and Entity B. That arrangement …","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d7a2a5337f2f93ca70b839d30e89c8501490ecc1e73746502a7f3b28fd0a40e4","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143F","para":"55-143F","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8On July 1, 20X1, Entity A issues a five-year fixed-rate bond. If Entity A’s parent entity, Parent Company, fails to meet a specified greenhouse gas emissions reduction target that includes both direct and indirect greenhouse gas emissions (including upstream and downstream emissions) at the consolidated group level by June 30, 20X3, the fixed interest rate on Entity A’s bond increases by 0.25 percent for the remaining term. Entity A and Parent Company are committed to meeting the target and taking actions to reduce greenhouse gas emissions. The bond is a hybrid instrument that contains an embedded feature that is required to be evaluated for bifurcation. The embedded feature contains one underlying: the failure to meet a greenhouse gas emissions reduction target at the consolidated group level. Because Entity A is a subsidiary of Parent Company, the failure to meet the greenhouse gas emissions reduction target at the consolidated level is considered an activity specific to one of the parties to the contract for the purposes of both Entity A’s standalone financial statements and Parent Company’s consolidated financial statements. The underlying is not based on a market rate, market price, market index, or the price or performance (including default) of a financial asset or financial liability of one of the parties to the contract as described in paragraph 815-10-15-59(e)(1) and (e)(2). Also, the exclusions related to contracts involving an entity’s own equity or call options and put options on debt instruments as described in paragraph 815-10-15-59(e)(3) and (e)(4) do not apply. Therefore, the underlying qualifies for the scope exception in paragraph 815-10-15-59(e).
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8On July 1, 20X1, Entity A issues a five-year fixed-rate bond. If Entity A’s parent entity, Parent Company, fails to meet a specif…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:75e0a6fc8a125e1398d60c04c2edfe25515409bedcea7acd6854770b1b69125b","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143G","para":"55-143G","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8Entity A, a litigant seeking to recover patent infringement damages, enters into a funding arrangement with Entity B. Under the arrangement, Entity B provides $1 million to fund Entity A’s litigation. The arrangement has no clawback feature. Upon a successful litigation outcome, Entity A will pay Entity B 50 percent of the settlement amount that it receives from the resolution of the litigation.
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8Entity A, a litigant seeking to recover patent infringement damages, enters into a funding arrangement with Entity B. Under the a…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9d52f6d4a25dd4b154872e390052b18089a763b0685b746eeead40984d40ac95","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143H","para":"55-143H","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8The arrangement between Entity A and Entity B contains one underlying: the occurrence of a successful litigation outcome. The settlement amount (and the percentage of this amount) received from the resolution of the litigation is a payment provision. Because Entity A is engaged in the legal proceeding, the underlying is based on the operations or activities of Entity A. The underlying is not based on a market rate, market price, market index, or the price or performance (including default) of a financial asset or financial liability of one of the parties to the contract as described in paragraph 815-10-15-59(e)(1) and (e)(2). Also, the exclusions related to contracts involving an entity’s own equity or call options and put options on debt instruments as described in paragraph 815-10-15-59(e)(3) and (e)(4) do not apply. Therefore, the underlying qualifies for the scope exception in paragraph 815-10-15-59(e).
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8The arrangement between Entity A and Entity B contains one underlying: the occurrence of a successful litigation outcome. The set…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:345ccc7703b6b841a513ea0691275ed4500a6bfe0a8f4336457dfbf8ba778606","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143I","para":"55-143I","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8Entity C, a law firm, has been engaged to represent a litigant whereby legal fees are calculated as 30 percent of the final judgment (the settlement amount). Entity C separately enters into a funding arrangement with Entity B. Under the arrangement, Entity B provides funding of $1 million so that Entity C may hire additional staff to perform research related to the litigant’s legal proceeding. The arrangement has no clawback feature. Upon a successful litigation outcome, Entity C will pay Entity B 50 percent of the legal fees received from the litigant.
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8Entity C, a law firm, has been engaged to represent a litigant whereby legal fees are calculated as 30 percent of the final judgm…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7312ecff16b0f6345f7d2325bb317917f8efd100f48b66d3abd4befd96c0f7a3","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143J","para":"55-143J","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8The evaluation of the scope exception in this Example focuses on the arrangement between Entity C and Entity B. That arrangement contains one underlying: the occurrence of a successful litigation outcome related to the litigant that Entity C is representing. The settlement amount (and the percentage of this amount) received by the litigant is a payment provision. Because Entity C is engaged to represent the litigant in the legal proceeding, the underlying is based on the operations or activities of Entity C. The underlying is not based on a market rate, market price, market index, or the price or performance (including default) of a financial asset or financial liability of one of the parties to the contract as described in paragraph 815-10-15-59(e)(1) and (e)(2). Also, the exclusions related to contracts involving an entity’s own equity or call options and put options on debt instruments as described in paragraph 815-10-15-59(e)(3) and (e)(4) do not apply. Therefore, the underlying qualifies for the scope exception in paragraph 815-10-15-59(e).
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8The evaluation of the scope exception in this Example focuses on the arrangement between Entity C and Entity B. That arrangement …","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a9c29a8be36ecac4ac08783a650d05ced6ed0eb8ff18c4f2cb02621261a6fd74","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143K","para":"55-143K","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8Entity A buys and sells gold as part of its operations. Entity A enters into a contract with Entity B whereby Entity A receives an upfront payment in exchange for a specified percentage of a price increase in the market price of gold. The arrangement contains one underlying: the market price of gold. The underlying is based on a market price as described in paragraph 815-10-15-59(e)(1). Therefore, the underlying does not qualify for the scope exception in paragraph 815-10-15-59(e).
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8Entity A buys and sells gold as part of its operations. Entity A enters into a contract with Entity B whereby Entity A receives a…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d9b08fd8afc3df672e8d8cbd30a7f9fb29cff28d6451fe06ac879d287ba9e3f3","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143L","para":"55-143L","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8Entity A, a pharmaceutical company, acquires Entity B, a biotechnology start-up company that does not meet the definition of a business. As part of the transaction, Entity A and the sellers of Entity B enter into a variable payment arrangement whereby Entity A will pay the sellers of Entity B an additional $2 million upon regulatory approval of a drug compound that Entity B is developing.
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8Entity A, a pharmaceutical company, acquires Entity B, a biotechnology start-up company that does not meet the definition of a bu…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:608d975d67614d5e0973b2eae6ecdfd35da9fdc672354a49cf16acffbe96bcc5","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143M","para":"55-143M","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8The arrangement contains one underlying: the occurrence of regulatory approval. The occurrence of regulatory approval relates to the drug that Entity B is developing as part of its operations. The underlying is not based on a market rate, market price, market index, or the price or performance (including default) of a financial asset or financial liability of one of the parties to the contract as described in paragraph 815-10-15-59(e)(1) and (e)(2). Also, the exclusions related to contracts involving an entity’s own equity or call options and put options on debt instruments as described in paragraph 815-10-15-59(e)(3) and (e)(4) do not apply. Therefore, the underlying qualifies for the scope exception in paragraph 815-10-15-59(e).
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8The arrangement contains one underlying: the occurrence of regulatory approval. The occurrence of regulatory approval relates to …","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1a98511de1b950ce08afeae08654de191e39c40fff5e8d6b19c28e63bcf7a4ed","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143N","para":"55-143N","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8Entity A acquires a patent from Entity B. As part of the transaction, Entity A and Entity B enter into an earnout arrangement whereby Entity A will pay Entity B $3 for each $1 that earnings before interest, taxes, depreciation, and amortization (EBITDA) associated with the manufacturing and sale of products that rely on that patent is in excess of $1 million on the 1-year anniversary of the purchase date. If EBITDA associated with the manufacturing and sale of products using the patent does not exceed $1 million, Entity A does not owe Entity B any amounts under the earnout arrangement.
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8Entity A acquires a patent from Entity B. As part of the transaction, Entity A and Entity B enter into an earnout arrangement whe…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d344377bc62636f70dfa03b631a9f4850729b1079aabae3ea58a27d767bcee8b","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143O","para":"55-143O","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8The arrangement contains one underlying: an earnings measure (EBITDA) related to the manufacturing and sale of products that rely on the patent acquired by Entity A. The underlying is not based on a market rate, market price, market index, or the price or performance (including default) of a financial asset or financial liability of one of the parties to the contract as described in paragraph 815-10-15-59(e)(1) and (e)(2). Also, the exclusions related to contracts involving an entity’s own equity or call options and put options on debt instruments as described in paragraph 815-10-15-59(e)(3) and (e)(4) do not apply. Therefore, the underlying qualifies for the scope exception in paragraph 815-10-15-59(e).
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8The arrangement contains one underlying: an earnings measure (EBITDA) related to the manufacturing and sale of products that rely…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a3b8e10a7b6f6ec1b5af6ba82f4a0a463a714fd0e818ac7870bc96135c0039ff","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143P","para":"55-143P","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8Entity A acquires Entity B (which does not meet the definition of a business) in exchange for two million shares of Entity A’s common stock. As part of the acquisition agreement, Entity A agrees to pay cash to the sellers of Entity B if the quoted market price of Entity A’s common stock is less than $100 on the 1-year anniversary of the acquisition date. Specifically, if the quoted market price of Entity A’s common stock is less than $100 on the 1-year anniversary of the acquisition date, the total amount paid in cash to the sellers of Entity B is equal to $100 minus Entity A’s common stock price on the 1-year anniversary of the acquisition date multiplied by 2 million shares.
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8Entity A acquires Entity B (which does not meet the definition of a business) in exchange for two million shares of Entity A’s co…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:726f294266059822ec90095a6e806fbc1880a78219195f22e5a725affa9e1466","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143Q","para":"55-143Q","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8The arrangement contains 1 underlying: the common stock price differential ($100 less Entity A’s common stock price at the 1-year anniversary of the acquisition date). The underlying is based on a market price as described in paragraph 815-10-15-59(e)(1). Therefore, the underlying does not qualify for the scope exception in paragraph 815-10-15-59(e).
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8The arrangement contains 1 underlying: the common stock price differential ($100 less Entity A’s common stock price at the 1-year…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e0c17443dea66443b38d445adcbd59d71c26be5a768f479390be519cbac860a1","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143R","para":"55-143R","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8Entity A holds a debt instrument issued by Entity C. Entity A separately enters into a credit default swap arrangement with Entity B to obtain credit protection on its debt investment in Entity C (the reference entity). As part of that arrangement, Entity A makes periodic premium payments to Entity B, and, in exchange, Entity B agrees to make a cash payment to Entity A if the reference entity defaults on the debt instrument.
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8Entity A holds a debt instrument issued by Entity C. Entity A separately enters into a credit default swap arrangement with Entit…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fd7e4f2a75a58799497501fba11d843e19919edb2c412fded1df2e02897e4bd0","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-143S","para":"55-143S","html":"
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
815-10-65-8The arrangement contains one underlying: the occurrence of an event of default by the reference entity. While the underlying is not based on a market rate, market price, or market index as described in paragraph 815-10-15-59(e)(1), the underlying is based on the price or performance (including default) of a financial asset of one of the parties to the contract (the debt instrument held by Entity A) as described in paragraph 815-10-15-59(e)(2). Therefore, the underlying does not qualify for the scope exception in paragraph 815-10-15-59(e).
","snippet":"Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:815-10-65-8The arrangement contains one underlying: the occurrence of an event of default by the reference entity. While the underlying is n…","pending":true,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:916ba3f01a701555c68d9ed7f90b259f97d5e407c9aa0a1638650baae59fa82c","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-144","para":"55-144","html":"
This Example illustrates the application of paragraph 815-10-15-74(a). Assume that Entity A, whose functional currency is the U.S. dollar (USD), and the Counterparty enter into a one-year forward contract that is indexed to Entity A's common share price translated into euros (EUR) at spot rates and that will be settled in net shares of Entity A. If the value of Entity A's common stock in EUR appreciates, then Entity A will receive from the Counterparty a number of shares of Entity A stock equal to the appreciation. If the value of Entity A's stock in EUR depreciates, then Entity A will pay Counterparty a number of shares of Entity A stock equal to the depreciation. Thus, the forward contract is indexed both to Entity A's common stock and the USD/EUR currency exchange rates.
","snippet":"This Example illustrates the application of paragraph 815-10-15-74(a). Assume that Entity A, whose functional currency is the U.S. dollar (USD), and the Counterparty enter into a one-year forward contract that is indexed…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5b570ff6c3876418f45b397c419890b17b610cbb05d940ae9be50a945eac5e5d","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-145","para":"55-145","html":"
Assume further that Entity A's common stock price at inception is USD 100 per share, and the forward exchange rate of USD to EUR is 1:1.2. The strike price of the forward contract is then set at EUR 120. One year later, the share price of Entity A rises to USD 150, and the spot exchange rate of USD to EUR is 1:1. Then, the share price of Entity A translated is EUR 150. At settlement, Entity A will receive from the Counterparty 20 shares of its own common stock according to the following calculation:
","snippet":"Assume further that Entity A's common stock price at inception is USD 100 per share, and the forward exchange rate of USD to EUR is 1:1.2. The strike price of the forward contract is then set at EUR 120. One year later, …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2c08f92045bfa985158788edc671fd97b238297d75eff87277ec8103e9274f6f","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-146","para":"55-146","html":"
A forward contract that is indexed to both an entity's own stock and currency exchange rates should be accounted for as a derivative instrument in its entirety by both parties to the contract if the contract in its entirety meets the definition of a derivative instrument in paragraphs
815-10-15-83 through 15-139
.
","snippet":"A forward contract that is indexed to both an entity's own stock and currency exchange rates should be accounted for as a derivative instrument in its entirety by both parties to the contract if the contract in its entir…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a59bcb557063f6c17024b07b652d511fa6423bf16cf522df64d9eeb4cc0b4043","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-147","para":"55-147","html":"
Paragraph 815-20-25-71(a)(2) prohibits separating a derivative instrument into components based on different risks. Consequently, it would be inappropriate to bifurcate the forward contract described in this Example according to its differing exposures to changes in Entity A's stock price and changes in the USD/EUR exchange rate and then attempt to apply paragraph 815-10-15-74(a) only to the exposure to changes in Entity A's stock price. That paragraph must be applied to an entire contract.
","snippet":"Paragraph 815-20-25-71(a)(2) prohibits separating a derivative instrument into components based on different risks. Consequently, it would be inappropriate to bifurcate the forward contract described in this Example acco…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:01521e2b439b00cc7f4dcf1dce8b55bfbb7859caf72272bcfb8459dd307bfd10","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-148","para":"55-148","html":"
The following Cases illustrate the accounting for a prepaid interest rate swap:
  1. a
    Prepaid interest rate swap (Case A)
  2. b
    Prepaid interest rate swap that must be bifurcated (Case B)
  3. c
    Prepaid interest rate swap variation (Case C).
","snippet":"The following Cases illustrate the accounting for a prepaid interest rate swap:\n(a) Prepaid interest rate swap (Case A)\n(b) Prepaid interest rate swap that must be bifurcated (Case B)\n(c) Prepaid interest rate swap varia…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c71fb0cd7c352a729eb3c792f8adf296cb759998b9c6f0df76fb02c2563cae17","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-149","para":"55-149","html":"
Cases A, B, and C assume both parties to the contract have the same AA credit rating. If the party that is obligated to make the variable payments has a different credit rating (such as BBB), the effect of that different creditworthiness should be reflected in the discount rate used to determine the present value of the amounts payable by that party under the contract.
","snippet":"Cases A, B, and C assume both parties to the contract have the same AA credit rating. If the party that is obligated to make the variable payments has a different credit rating (such as BBB), the effect of that different…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e9af005fa6152fc0714b929ed5a7810c3db9d6d4a56638ad1064d8e1868251c3","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-149A","para":"55-149A","html":"
Case A illustrates the application of paragraph 815-10-15-97.
","snippet":"Case A illustrates the application of paragraph 815-10-15-97.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:50664d762a623ca8f3e982838ecd696018017667ba0654365f0e3bcc6426b182","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-150","para":"55-150","html":"
Entity A pays $1,228,179 to enter into a prepaid interest rate swap contract that requires the counterparty to make quarterly payments based on a $10,000,000 effective notional amount and a variable interest rate equal to 3-month U.S. dollar- (USD-) denominated London Interbank Offered Rate (LIBOR). The prepaid interest rate swap contract is characterized as an at-the-money 2-year interest rate swap with a $10,000,000 notional amount, a fixed interest rate of 6.65 percent, and a variable interest rate of the 3-month USD LIBOR (that is, the same terms as the swap in Example 6 [see paragraph 815-30-55-24], which has a zero fair value at inception), for which the fixed leg has been fully prepaid. The amount of $1,228,179 is the present value of the 8 quarterly fixed payments of $166,250—that is, $10,000,000 x LIBOR swap rate of 6.65 percent / 4). The present value is based on the implied spot rate for each of the 8 payment dates under the assumed initial yield curve in that Example.
","snippet":"Entity A pays $1,228,179 to enter into a prepaid interest rate swap contract that requires the counterparty to make quarterly payments based on a $10,000,000 effective notional amount and a variable interest rate equal t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5d9d884805f4be374f854d1ae487ef709fdcc169f7ad8aa3a34465526a08b979","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-151","para":"55-151","html":"
The prepaid interest rate swap contract could also be characterized as a 2-year, structured note (contract) with a principal amount of $1,228,179 and loan payments based on a formula equal to 8.142 times 3-month USD LIBOR. (Note that 8.142 = 10,000,000 / 1,228,179.) The terms of the structured note specify no repayment of the principal amount either over the two-year term of the structured note or at the end of its term. The 8.142 leverage factor causes the effective notional amount of the structured note also to be $10,000,000.
","snippet":"The prepaid interest rate swap contract could also be characterized as a 2-year, structured note (contract) with a principal amount of $1,228,179 and loan payments based on a formula equal to 8.142 times 3-month USD LIBO…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:23ee331e4b2f6e22054419831999f0adf1896bcdd92d5c128050e99ffa6194f5","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-152","para":"55-152","html":"
The prepaid interest rate swap contract meets the characteristic of a derivative instrument in paragraph 815-10-15-83(a) because it has an underlying and an effective notional amount. It also meets the characteristic of a derivative instrument in paragraph 815-10-15-83(c) because neither party is required to deliver an asset that is associated with the underlying and that has a principal amount, stated amount, face value, number of shares, or other denomination that is equal to the notional amount (see paragraph 815-10-15-100). At issue is whether the prepaid interest rate swap contract meets the characteristic of a derivative instrument described in paragraph 815-10-15-83(b) related to the initial net investment in a contract.
","snippet":"The prepaid interest rate swap contract meets the characteristic of a derivative instrument in paragraph 815-10-15-83(a) because it has an underlying and an effective notional amount. It also meets the characteristic of …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2c74f493f9d62bf516c2784c55706e6afd8406a64b00058df4eb51ff54654626","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-153","para":"55-153","html":"
The prepaid interest rate swap contract does not meet the definition of a derivative instrument because it does not satisfy the characteristic of a derivative instrument described in paragraph 815-10-15-83(b) related to the initial net investment in the contract. Specifically, the prepaid interest rate swap contract is excluded from the definition of a derivative instrument by the clarifying guidance on initial net investment beginning in paragraph 815-10-15-94. The prepaid interest rate swap contract in this Case requires an initial net investment that is determined by applying the effective notional amount of $10,000,000 to the underlying (3-month USD LIBOR) for each of the 8 payment dates specified by the terms of the contract. The initial net investment of $1,228,179 required to enter into the contract is the present value of the 8 quarterly fixed-leg swap payments of $166,250—that is, $10,000,000 × 6.65 percent / 4. Because the LIBOR swap rate reflects the applicable portions of the forward three-month USD LIBOR rate curve for the settlement dates that relate to the specific payments under the swap, the initial net investment is considered to have been determined by applying the effective notional amount to the underlying and then adjusted for the time value of money.
","snippet":"The prepaid interest rate swap contract does not meet the definition of a derivative instrument because it does not satisfy the characteristic of a derivative instrument described in paragraph 815-10-15-83(b) related to …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:14f7bae0a83b85b59fb14bf61bbd0c67ee2233b018f58ecd1c6a975a90169801","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-154","para":"55-154","html":"
That is, as stated in paragraph 815-10-15-97, a contract that requires an initial net investment in the contract that is in excess of the amount determined by applying the effective notional amount to the underlying is also not a derivative instrument in its entirety.
","snippet":"That is, as stated in paragraph 815-10-15-97, a contract that requires an initial net investment in the contract that is in excess of the amount determined by applying the effective notional amount to the underlying is a…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5f809179e7cdf30378d9a6c3751555d48f81309aa94287fa20116878d90eb988","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-155","para":"55-155","html":"
See related analysis in Case B.
","snippet":"See related analysis in Case B.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c4dbfc426bf2a78d9cbc89eea04240d0356331d63a73c05b7a7bed7d918b9593","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-156","para":"55-156","html":"
Entity B pays $1,782,245 to enter into a prepaid interest rate swap contract that requires the counterparty to make quarterly payments based on a $10,000,000 effective notional amount and a variable interest rate equal to the sum of 3-month USD LIBOR and 300 basis points. The prepaid interest rate swap contract is characterized as an at-the-money 2-year interest rate swap with a $10,000,000 notional amount, a fixed interest rate of 9.65 percent, and a variable interest rate of 3-month USD LIBOR plus 300 basis points, for which the fixed leg has been fully prepaid. The amount of $1,782,245 is the present value of the 8 quarterly fixed payments of $241,250—that is, $10,000,000 x the fixed rate of 9.65 percent / 4. The present value is based on the implied spot rate for each of the 8 payment dates under the assumed initial yield curve in Example 6 (see paragraph 815-30-55-24).
","snippet":"Entity B pays $1,782,245 to enter into a prepaid interest rate swap contract that requires the counterparty to make quarterly payments based on a $10,000,000 effective notional amount and a variable interest rate equal t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5fe4aa082b9428c4a4e94a23501c25b9dc5ad929e0a1a93dd1f268b0f68a2320","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-157","para":"55-157","html":"
In this Case, the underlying is 3-month USD LIBOR (even though the variable rate is 3-month USD LIBOR plus 300 basis points) and the amount determined by applying the effective notional amount to the underlying (and then adjusted for the time value of money) is $1,228,179, the same as in Case A. The initial net investment for the prepaid interest rate swap in this Case is $1,782,245, an amount that is in excess of $1,228,179—the amount referred to in paragraph 815-10-15-95 as being determined by applying the effective notional amount to the underlying. Consequently, the prepaid interest rate swap in this Case is not a derivative instrument in its entirety.
","snippet":"In this Case, the underlying is 3-month USD LIBOR (even though the variable rate is 3-month USD LIBOR plus 300 basis points) and the amount determined by applying the effective notional amount to the underlying (and then…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6b4753a87ffe8741e0567eeff242c9688e7f0e3fecd54c147d50ff7fa820eeb4","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-158","para":"55-158","html":"
Because the prepaid interest rate swap contract is not a derivative instrument in its entirety, it should be evaluated to determine whether the contract contains an embedded derivative that, pursuant to paragraph 815-15-25-1, requires separate accounting as a derivative instrument.
","snippet":"Because the prepaid interest rate swap contract is not a derivative instrument in its entirety, it should be evaluated to determine whether the contract contains an embedded derivative that, pursuant to paragraph 815-15-…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9a3875e0c8262bdf16eba337bc8350b5f4870e3bc3896d45dcd384b8fd8cc538","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-159","para":"55-159","html":"
The prepaid interest rate swap contracts in Cases A and B are hybrid instruments that are composed of a debt instrument (the host contract) and an embedded derivative based on three-month USD LIBOR.
","snippet":"The prepaid interest rate swap contracts in Cases A and B are hybrid instruments that are composed of a debt instrument (the host contract) and an embedded derivative based on three-month USD LIBOR.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6987b68f0e4455878ca5b4380a4a16c3bfb9d27b24b30934d59f4e9b1470c0d1","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-160","para":"55-160","html":"
The embedded derivative contains a provision that could result in the investor (that is, the entity receiving the variable payments) not recovering substantially all of its initial recorded investment in the hybrid instrument under its contractual terms. That is, LIBOR may possibly decrease to such a level that the investor may not recover its initial net investment.
","snippet":"The embedded derivative contains a provision that could result in the investor (that is, the entity receiving the variable payments) not recovering substantially all of its initial recorded investment in the hybrid instr…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7de8ca8677759d8717a79dd468b9e9cf2858d7e3edbe0a5ef0562a40272b287e","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-161","para":"55-161","html":"
Therefore, the embedded interest rate swap is not considered clearly and closely related to the host contract under paragraph 815-15-25-26(a) with respect to the accounting by both parties to the contract.
","snippet":"Therefore, the embedded interest rate swap is not considered clearly and closely related to the host contract under paragraph 815-15-25-26(a) with respect to the accounting by both parties to the contract.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:81c8a1543f72399a10b6591eca068bf0e53d7222d46bfd45ecfb0ed846589ebe","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-162","para":"55-162","html":"
That paragraph states that if an embedded interest rate derivative contains a provision that permits any possibility whatsoever that the investor's (or creditor's) undiscounted net cash inflows over the life of the instrument would not enable the investor to recover substantially all of its initial recorded investment in the hybrid instrument under its contractual terms, the embedded derivative and the debt host contract are not clearly and closely related.
","snippet":"That paragraph states that if an embedded interest rate derivative contains a provision that permits any possibility whatsoever that the investor's (or creditor's) undiscounted net cash inflows over the life of the instr…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:19c9bba174c77bbc5678325059ee7dc80c591f59103f848957e8980436485f18","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-163","para":"55-163","html":"
Therefore, unless the contracts described in Cases A and B are remeasured at fair value with changes in value recorded in earnings as they occur, both prepaid interest rate swap contracts should be bifurcated by both parties to the contract into a debt host contract whose initial carrying amount is equal to the fair value of the prepaid interest rate swap contracts ($1,228,179 and $1,782,245, respectively) and an interest rate swap whose fair value is zero at inception of the hybrid instrument, consistent with the guidance in paragraph 815-15-30-4.
","snippet":"Therefore, unless the contracts described in Cases A and B are remeasured at fair value with changes in value recorded in earnings as they occur, both prepaid interest rate swap contracts should be bifurcated by both par…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f7e3c75ef65be42fa8ad1e6b1f45b53b5b9bf16aa6cd72aac65bdb869bc82c07","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-164","para":"55-164","html":"
The bifurcated interest rate swap contains no financing element that would require special cash flow reporting under paragraphs
815-10-45-11 through 45-15
.
","snippet":"The bifurcated interest rate swap contains no financing element that would require special cash flow reporting under paragraphs 815-10-45-11 through 45-15.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fae510ac35525270631a0b116ebb5eb8e54d3da62a049ae92b97f2ab597d71f9","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-165","para":"55-165","html":"
The reporting of the cash flows for the related debt host contract would be subject to the provisions of Topic 230.
","snippet":"The reporting of the cash flows for the related debt host contract would be subject to the provisions of Topic 230.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1f3742cc32528fca51d402f7ac006e31d147e0cc0214b1f95d1d7abf75adb9bf","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-166","para":"55-166","html":"
Entity C pays $1,043,490 to enter into a contract that requires the counterparty to make quarterly payments based on a $10,000,000 effective notional amount and a variable interest rate equal to the 3-month USD LIBOR minus 100 basis points. In the event that 3-month USD LIBOR is less than 100 basis points, Entity C is obligated to make payments to the counterparty. The prepaid interest rate swap contract is characterized as an at-the-money 2-year interest rate swap with a $10,000,000 notional amount, a fixed interest rate of 5.65 percent, and a variable interest rate of 3-month USD LIBOR minus 100 basis points, for which the fixed leg has been fully prepaid. The amount of $1,043,490 is the present value of the 8 quarterly fixed payments of $141,250—that is, $10,000,000 x the fixed rate of 5.65 percent / 4. The present value is based on the implied spot rate for each of the 8 payment dates under the assumed initial yield curve in Example 6 (see paragraph 815-30-55-24).
","snippet":"Entity C pays $1,043,490 to enter into a contract that requires the counterparty to make quarterly payments based on a $10,000,000 effective notional amount and a variable interest rate equal to the 3-month USD LIBOR min…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:927aa219281d87f1a3333e22b9ee662f26a07cf24a76453550c0a36b4a3561cc","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-167","para":"55-167","html":"
In this Case, the underlying is 3-month USD LIBOR (even though the variable rate is 3-month USD LIBOR minus 100 basis points) and the amount determined by applying the effective notional amount to the underlying (and then adjusted for the time value of money) is $1,228,179, the same as in Case A. The initial net investment for the contract in this Case is $1,043,490, an amount that is less than $1,228,179. (The contract is considered not to be fully prepaid because Entity C has not prepaid all obligations imposed on it by the contract; Entity C is obligated to make future payments under certain conditions, as noted in the preceding paragraph.) The difference of $184,689 (about 15 percent) is more than a nominal amount if compared to $1,228,179. Consequently, the contract in this Case is a derivative instrument in its entirety.
","snippet":"In this Case, the underlying is 3-month USD LIBOR (even though the variable rate is 3-month USD LIBOR minus 100 basis points) and the amount determined by applying the effective notional amount to the underlying (and the…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a8cce12eeff7e8b8812aee5db9bd3eebf49cb56e7cc00939afcf09453ba593e0","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-168","para":"55-168","html":"
The amounts in this Case are not intended to provide quantitative guidance for distinguishing between being less by more than a nominal amount and being less by only a nominal amount. The initial net investment for a contract could be less than the amount determined by applying the effective notional amount to the underlying by a percentage lower than 15 percent and still be considered to be less, by more than a nominal amount under paragraph 815-10-15-96.
","snippet":"The amounts in this Case are not intended to provide quantitative guidance for distinguishing between being less by more than a nominal amount and being less by only a nominal amount. The initial net investment for a con…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f12fbc40f7a28a47ff20f66baa19e971390d0dcff465c20d54cf3621bfd3db7c","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-169","para":"55-169","html":"
Paragraph 815-10-55-63 explains that, from the perspective of the issuer of the contract, synthetic guaranteed investment contracts are derivative instruments as defined in this Subtopic. For a background discussion of synthetic guaranteed investment contracts, including a comparison with traditional and benefit-responsive guaranteed investment contracts, see paragraph 815-10-05-8. This Example illustrates the contractual terms of a synthetic guaranteed investment contract.
","snippet":"Paragraph 815-10-55-63 explains that, from the perspective of the issuer of the contract, synthetic guaranteed investment contracts are derivative instruments as defined in this Subtopic. For a background discussion of s…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d436319a8b358f8875b77b2294e77c96645aac8bcba68c966c523e433bc66417","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-170","para":"55-170","html":"
On January 1, 2000, ABC issues a synthetic guaranteed investment contract to the XYZ Pension Fund. XYZ has a fixed return plan option that provides participants with a guaranteed 6 percent return for a 3-year period. The plan's invested assets consist of one public, $50 million par value, 6.50 percent, AA-rated, fixed-rate, noncallable, semiannual payment bond that matures at par on December 31, 2002. (A simplistic assumption that is unrealistic because the plan would diversify its exposure by owning various bonds.) XYZ acquired the bond at par on January 1, 2000. ABC is charging XYZ 12 basis points per year on the $50 million plan balance, or $60,000 per year. Assume that the market yield applicable to this bond immediately increased to 8 percent and caused the following events to occur:
  1. a
    The bond price decreased to $48,342,000.
  2. b
    All plan participants requested that their funds be transferred to another plan fund.
  3. c
    XYZ exercised its put option to transfer the bond to ABC in exchange for a $50 million cash payment.
  4. d
    ABC honored its synthetic guaranteed investment contract obligation and acquired the bond for $50 million.
  5. e
    XYZ used the $50 million proceeds to make the transfer of participant funds to the newly selected fund.
","snippet":"On January 1, 2000, ABC issues a synthetic guaranteed investment contract to the XYZ Pension Fund. XYZ has a fixed return plan option that provides participants with a guaranteed 6 percent return for a 3-year period. The…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:878ae51f87f9d805f8f17188b462d5eeb7337f8754640a7102368002e4f5565f","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-171","para":"55-171","html":"
The following Cases illustrate when separate transactions should be viewed as a unit:
  1. a
    Swaps that should be viewed as a unit (Case A)
  2. b
    Swaps that should not be viewed as a unit (Case B).
","snippet":"The following Cases illustrate when separate transactions should be viewed as a unit:\n(a) Swaps that should be viewed as a unit (Case A)\n(b) Swaps that should not be viewed as a unit (Case B).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8036562b4c8d27b98f356cd59045393bf9936dd85c9e2647a8038c38f7cc69f9","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-172","para":"55-172","html":"
In Cases A and B, an entity that is the issuer of fixed-rate debt enters into an interest rate swap (Swap 1) and designates it as a hedge of the fair value exposure of the debt to interest rate risk. The fair value hedge of the fixed-rate debt involving Swap 1 meets the required criteria in Section 815-20-25 to qualify for hedge accounting. The entity simultaneously enters into a second interest rate swap (Swap 2) with the same counterparty with the exact mirror terms as Swap 1 and does not designate Swap 2 as part of that hedging relationship.
","snippet":"In Cases A and B, an entity that is the issuer of fixed-rate debt enters into an interest rate swap (Swap 1) and designates it as a hedge of the fair value exposure of the debt to interest rate risk. The fair value hedge…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f2a65a49a280c38d097eb9c46851286599147a8fb7c9568aae1f7b5db02cbfde","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-173","para":"55-173","html":"
If Swap 2 was entered into in contemplation of Swap 1 and the overall transaction was executed for the sole purpose of obtaining fair value accounting treatment for the debt, it should be concluded that the purpose of the transaction was not to enter into a bona fide hedging relationship involving Swap 1. In that instance, the two swaps should be viewed as a unit and the entity would not be permitted to adjust the carrying value of the debt to reflect changes in fair value attributable to interest rate risk.
","snippet":"If Swap 2 was entered into in contemplation of Swap 1 and the overall transaction was executed for the sole purpose of obtaining fair value accounting treatment for the debt, it should be concluded that the purpose of th…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e5e900fc9c1750adef8676069e5726ac4377477a98d1ffcc2138055c7921ac3b","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-174","para":"55-174","html":"
If Swap 2 was not entered into in contemplation of Swap 1 or there is a substantive business purpose for structuring the transactions separately, and if both Swap 1 and Swap 2 were entered into in arm's-length transactions (that is, at market rates), then the swaps should not be viewed as a unit. For example, some entities have a policy that requires a centralized dealer subsidiary to enter into third-party derivative contracts on behalf of other subsidiaries within the entity to hedge the subsidiaries' interest rate risk exposures. The dealer subsidiary also enters into internal derivative contracts with those subsidiaries to operationally track those hedges within the entity. (As discussed beginning in paragraph 815-20-25-61, internal derivatives do not qualify in consolidated financial statements as hedging instruments for risks other than foreign exchange risk.)
","snippet":"If Swap 2 was not entered into in contemplation of Swap 1 or there is a substantive business purpose for structuring the transactions separately, and if both Swap 1 and Swap 2 were entered into in arm's-length transactio…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b77a2398a9728f5e9080e696237731d0bc0e62a208dbe429e1e7117f7b56a13b","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-175","para":"55-175","html":"
The following Cases illustrate the guidance in paragraphs
815-10-15-8 through 15-9
on whether separate transactions should be viewed as a unit for purposes of evaluating the characteristic of net settlement:
  1. a
    Two forward contracts viewed as a unit (Case A)
  2. b
    Borrowing and lending transactions viewed as a unit (Case B).
","snippet":"The following Cases illustrate the guidance in paragraphs 815-10-15-8 through 15-9 on whether separate transactions should be viewed as a unit for purposes of evaluating the characteristic of net settlement:\n(a) Two forw…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:88066c475cc5a47e4c9b57697f4c22ef1751096dadcdd3de559aa602b5b65c0f","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-176","para":"55-176","html":"
In Cases A and B, the transactions were entered into with the same counterparty, were executed simultaneously, and relate to the same risk.
","snippet":"In Cases A and B, the transactions were entered into with the same counterparty, were executed simultaneously, and relate to the same risk.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d93107261de2c0b8d06797554850e22d0213bf34f25f47923d8b6f8dfd378a12","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-177","para":"55-177","html":"
Entity A enters into a forward contract to purchase 1,500,000 units of a particular commodity in 3 months for $10 per unit. Simultaneously, Entity A enters into a forward contract to sell 1,400,000 units of the same commodity in 3 months for $10 per unit. The purchase and sale contracts are with the same counterparty. There is no market mechanism to facilitate net settlement of the contracts, and both contracts require physical delivery of the commodity at the same location in exchange for the forward price. On a gross basis, neither contract is readily convertible to cash because the market cannot rapidly absorb the specified quantities without significantly affecting the price. However, on a net basis, Entity A has a forward purchase contract for 100,000 units of the commodity, a quantity that can be rapidly absorbed by the market and thus is readily convertible to cash.
","snippet":"Entity A enters into a forward contract to purchase 1,500,000 units of a particular commodity in 3 months for $10 per unit. Simultaneously, Entity A enters into a forward contract to sell 1,400,000 units of the same comm…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a7a60ce8dd9bf6bd783d8942c7b35a873863ca3821b2b9cc36d637fb54a67534","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-178","para":"55-178","html":"
In this Case, it appears that there is no clear business purpose for structuring the transactions separately. Therefore, the facts point to the conclusion that the purchase and sale were done as a structured transaction with one counterparty to circumvent the definition of a derivative instrument under this Subtopic. However, if the facts indicated that both contracts required physical delivery of the commodity at different locations that are significantly distant from one another and each counterparty is expected to deliver the gross amount of the commodity to the other, those facts may reflect a valid substantive business purpose for the transaction.
","snippet":"In this Case, it appears that there is no clear business purpose for structuring the transactions separately. Therefore, the facts point to the conclusion that the purchase and sale were done as a structured transaction …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e58922193ff48dac82a2db688e2c6abbef10f4759508d7e38dda7b14e5091fc4","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-179","para":"55-179","html":"
Entity C loans $100 to Entity B. The loan has a 5-year bullet maturity and an 8 percent fixed interest rate, payable semiannually. Entity B simultaneously loans $100 to Entity C. The loan has a five-year bullet maturity and a variable interest of LIBOR, payable semiannually and reset semiannually. Entity B and Entity C enter into a netting arrangement that permits each party to offset its rights and obligations under the agreements. The netting arrangement meets the criteria for offsetting in Subtopic 210-20. The net effect of offsetting the contracts for both Entity B and Entity C is the economic equivalent of an interest rate swap arrangement, that is, one party receives a fixed interest rate from, and pays a variable interest rate to, the other.
","snippet":"Entity C loans $100 to Entity B. The loan has a 5-year bullet maturity and an 8 percent fixed interest rate, payable semiannually. Entity B simultaneously loans $100 to Entity C. The loan has a five-year bullet maturity …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6cf4243e1f5701619aec8014fdaca03373a0090c22366f6e4baf30f73a921051","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-180","para":"55-180","html":"
In this Case, based on the facts presented, there is no clear business purpose for the separate transactions, and they should be accounted for as an interest rate swap under this Subtopic. However, in other instances, a clear substantive business purpose for entering into two separate loan transactions may exist (for example, as a means to overcome foreign currency expatriation restrictions).
","snippet":"In this Case, based on the facts presented, there is no clear business purpose for the separate transactions, and they should be accounted for as an interest rate swap under this Subtopic. However, in other instances, a …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a93617f20761570ffd07a0d5ecccb080114f591c6c75232dca5ac67962544d13","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-181","para":"55-181","html":"
This Example illustrates the disclosure of objectives and strategies for using derivative instruments by underlying risk, including volume of activity (see paragraph 815-10-50-1A(d)). It also illustrates the hedge basis adjustment disclosures in paragraphs 815-10-50-4EE through 50-4EEE.
","snippet":"This Example illustrates the disclosure of objectives and strategies for using derivative instruments by underlying risk, including volume of activity (see paragraph 815-10-50-1A(d)). It also illustrates the hedge basis …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:083eb73435f372ba6cc84170997ff9dc7f0b41c9ca2339ddf012a14c459123da","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-182","para":"55-182","html":"
This Example illustrates the disclosure in tabular format of fair value amounts of derivative instruments and gains and losses on derivative instruments as required by paragraphs
815-10-50-4A through 50-4E
:
","snippet":"This Example illustrates the disclosure in tabular format of fair value amounts of derivative instruments and gains and losses on derivative instruments as required by paragraphs 815-10-50-4A through 50-4E:","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8aa309ed93692667f2df14dbdb4a06e916222a5a920fca9f8e833345438ebdfc","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-183","para":"55-183","html":"
The illustrative disclosure tables in the preceding paragraph provide quantitative information about derivative instruments. However, in many instances, the use of derivative instruments in an entity's risk management strategies represents only a portion of the instruments used for that purpose. As permitted in paragraph 815-10-50-4F, an entity can elect to disclose information about certain derivatives included in an entity's trading activities in separate disclosures outside the required tabular format. That paragraph states that, if that disclosure option is elected, the entity shall include a footnote in the required tables referencing the use of alternative disclosures for trading activities.
","snippet":"The illustrative disclosure tables in the preceding paragraph provide quantitative information about derivative instruments. However, in many instances, the use of derivative instruments in an entity's risk management st…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:207601f38b83729b8885a96cd07d87aef2d9949dfa50b17d7e81d79856c1527f","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-184","para":"55-184","html":"
This Example illustrates one approach for presenting the quantitative information required under paragraph 815-10-50-4F when an entity elects the alternative disclosure for gains and losses on derivative instruments included in its trading activities. The Example does not address all possible ways of complying with the alternative disclosure requirements under that paragraph. Many entities already include the required information about their trading activities in other disclosures within the financial statements. Paragraph 815-10-50-4I states that, if information on derivative instruments (or nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 815-20-25-58 and 815-20-25-66) is disclosed in more than a single note to financial statements, an entity shall cross-reference from the derivative instruments (or nonderivative instruments) note to other notes in which derivative-instrument-related information is disclosed.
","snippet":"This Example illustrates one approach for presenting the quantitative information required under paragraph 815-10-50-4F when an entity elects the alternative disclosure for gains and losses on derivative instruments incl…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f9dd5243b5a27bc8af3f3489d903e0459de5c0ca71977575654a75ac282f642d","downloaded_from":"2026-09-10T01:35:18.840Z","last_downloaded_at":"2026-09-10T01:35:18.840Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480401","source_sha256":"056fb10a84bf36dbe9cd12bb71dcbf274c076b0cec661e994ea0e2f649dafc1d"}},{"citation":"815-10-55-185","para":"55-185","html":"
This Example illustrates the disclosure of credit-risk-related contingent features in derivative instruments as required by paragraph 815-10-50-4H.
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