{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/815/15/#30-initial-measurement","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":"815-15","subtopic_title":"Embedded Derivatives","section":{"number":"30","label":"30 Initial Measurement","anchor":"30-initial-measurement","is_sec":false,"groups":[{"block":null,"heading":"Hybrid Instruments That Are Not Separated","paragraphs":[{"citation":"815-15-30-1","para":"30-1","html":"
An entity shall measure both of the following initially at fair value:
  1. a
    A hybrid financial instrument that under paragraph 815-15-25-1 would be required to be separated into a host contract and a derivative instrument that an entity irrevocably elects to initially and subsequently measure in its entirety at fair value (with changes in fair value recognized in earnings)
  2. b
    An entire hybrid instrument if an entity cannot reliably identify and measure the embedded derivative that paragraph 815-15-25-1 requires be separated from the host contract.
","snippet":"An entity shall measure both of the following initially at fair value:\n(a) A hybrid financial instrument that under paragraph 815-15-25-1 would be required to be separated into a host contract and a derivative instrument…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:db1f733d249341ba31da406acc58f69a4c28e51c0ab44a7a8f0a526a1d6de1bd","downloaded_from":"2026-09-10T01:36:11.044Z","last_downloaded_at":"2026-09-10T01:36:11.044Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481082","source_sha256":"539158f492ac3dfa8df67f2966fd690b8321d481194615617fb8ff3e506afd3a"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e687278343f50c5042e38d3338e0e0436d5253718724dd388f47eff459418651","downloaded_from":"2026-09-10T01:36:11.044Z","last_downloaded_at":"2026-09-10T01:36:11.044Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481082","source_sha256":"539158f492ac3dfa8df67f2966fd690b8321d481194615617fb8ff3e506afd3a"}},{"block":null,"heading":"Hybrid Instruments That Are Separated","paragraphs":[{"citation":"815-15-30-2","para":"30-2","html":"
The allocation method that records the embedded derivative at fair value and determines the initial carrying value assigned to the host contract as the difference between the basis of the hybrid instrument and the fair value of the embedded derivative shall be used to determine the carrying values of the host contract component and the embedded derivative component of a hybrid instrument if separate accounting for the embedded derivative is required by this Subtopic. (Note that Section 815-15-25 allows for a fair value election for hybrid financial instruments that otherwise would require bifurcation.)
","snippet":"The allocation method that records the embedded derivative at fair value and determines the initial carrying value assigned to the host contract as the difference between the basis of the hybrid instrument and the fair v…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9a6918ec26add3b4e9a96972d1a140c9f3b48f9d95233f6416d84fa14ba8254a","downloaded_from":"2026-09-10T01:36:11.044Z","last_downloaded_at":"2026-09-10T01:36:11.044Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481082","source_sha256":"539158f492ac3dfa8df67f2966fd690b8321d481194615617fb8ff3e506afd3a"}},{"citation":"815-15-30-3","para":"30-3","html":"
The objective is to estimate the fair value of the derivative features separately from the fair value of the nonderivative portions of the contract. Estimates of fair value shall reflect all relevant features of each component. For example, an embedded purchased option that expires if the contract in which it is embedded is prepaid would have a different value than an option whose term is a specified period that is not subject to truncation.
","snippet":"The objective is to estimate the fair value of the derivative features separately from the fair value of the nonderivative portions of the contract. Estimates of fair value shall reflect all relevant features of each com…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1a2e26ac2ddbb092074862e370103ae567a2c3783a8580cfa5b6ebfe1e18bcbc","downloaded_from":"2026-09-10T01:36:11.044Z","last_downloaded_at":"2026-09-10T01:36:11.044Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481082","source_sha256":"539158f492ac3dfa8df67f2966fd690b8321d481194615617fb8ff3e506afd3a"}},{"citation":"815-15-30-4","para":"30-4","html":"
In separating a non-option embedded derivative from the host contract under paragraph 815-15-25-1, the terms of that non-option embedded derivative shall be determined in a manner that results in its fair value generally being equal to zero at the inception of the hybrid instrument. Because a loan and an embedded derivative can be bundled in a structured note that could have almost an infinite variety of stated terms, it is inappropriate to necessarily attribute significance to every one of the note's stated terms in determining the terms of the non-option embedded derivative. If a non-option embedded derivative has stated terms that are off-market at inception, that amount shall be quantified and allocated to the host contract because it effectively represents a borrowing. (This paragraph does not address the bifurcation of the embedded derivative by a holder who has acquired the hybrid instrument from a third party after the inception of that hybrid instrument.) The non-option embedded derivative shall contain a notional amount and an underlying consistent with the terms of the hybrid instrument. Artificial terms shall not be created to introduce leverage, asymmetry, or some other risk exposure not already present in the hybrid instrument. Generally, the appropriate terms for the non-option embedded derivative will be readily apparent. Often, simply adjusting the referenced forward price (pursuant to documented legal terms) to be at the market for the purpose of separately accounting for the embedded derivative will result in that non-option embedded derivative having a fair value of zero at inception of the hybrid instrument.
","snippet":"In separating a non-option embedded derivative from the host contract under paragraph 815-15-25-1, the terms of that non-option embedded derivative shall be determined in a manner that results in its fair value generally…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:65fa3227283fa9e597be83667aa3a1037746589e0468bbadab6760efa543bed1","downloaded_from":"2026-09-10T01:36:11.044Z","last_downloaded_at":"2026-09-10T01:36:11.044Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481082","source_sha256":"539158f492ac3dfa8df67f2966fd690b8321d481194615617fb8ff3e506afd3a"}},{"citation":"815-15-30-5","para":"30-5","html":"
In separating a non-option embedded derivative from the host contract under paragraph 815-15-25-1 if the holder has acquired the hybrid instrument in a secondary market after the inception of the hybrid instrument, the terms of the embedded derivative shall be determined by the holder so as to result in the derivative instrument having a fair value generally equal to zero at the date the holder enters into (that is, acquires) the hybrid instrument. The initial accounting by the holder of the hybrid instrument shall not be affected by whether it purchased the hybrid instrument at inception or after inception in a secondary market.
","snippet":"In separating a non-option embedded derivative from the host contract under paragraph 815-15-25-1 if the holder has acquired the hybrid instrument in a secondary market after the inception of the hybrid instrument, the t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b8c0c4e0dbd589459c4bad97a77fcd4600b14a264de7a47d5000e5e54e49ef29","downloaded_from":"2026-09-10T01:36:11.044Z","last_downloaded_at":"2026-09-10T01:36:11.044Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481082","source_sha256":"539158f492ac3dfa8df67f2966fd690b8321d481194615617fb8ff3e506afd3a"}},{"citation":"815-15-30-6","para":"30-6","html":"
The terms of an option-based embedded derivative shall not be adjusted to result in the embedded derivative being at the money at the inception of the hybrid instrument. In separating an option-based embedded derivative from the host contract under paragraph 815-15-25-1, the strike price of the embedded derivative shall be based on the stated terms documented in the hybrid instrument. As a result, the option-based embedded derivative at inception may have a strike price that does not equal the market price of the asset associated with the underlying. The guidance in this paragraph addresses both of the following:
  1. a
    The bifurcation of the option-based embedded derivative by a holder who has acquired the hybrid instrument from a third party either at inception or after inception of that hybrid instrument
  2. b
    The bifurcation of the option-based embedded derivative by the issuer when separate accounting for that embedded derivative is required.
","snippet":"The terms of an option-based embedded derivative shall not be adjusted to result in the embedded derivative being at the money at the inception of the hybrid instrument. In separating an option-based embedded derivative …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:25f3e082e01d780613a399c6dd09695c05c49a3ce7eef3a73637e08480a9b637","downloaded_from":"2026-09-10T01:36:11.044Z","last_downloaded_at":"2026-09-10T01:36:11.044Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481082","source_sha256":"539158f492ac3dfa8df67f2966fd690b8321d481194615617fb8ff3e506afd3a"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1a66281ca1b4975ebf1aa9082608ced913d54f3175d66d42de5ac39167f892a8","downloaded_from":"2026-09-10T01:36:11.044Z","last_downloaded_at":"2026-09-10T01:36:11.044Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481082","source_sha256":"539158f492ac3dfa8df67f2966fd690b8321d481194615617fb8ff3e506afd3a"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e4a95ec3e16bc9cc8e258d6a80c6307927fd2cdcfa15d37894a4bc702bf0c082","downloaded_from":"2026-09-10T01:36:11.044Z","last_downloaded_at":"2026-09-10T01:36:11.044Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481082","source_sha256":"539158f492ac3dfa8df67f2966fd690b8321d481194615617fb8ff3e506afd3a"}},"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e4a95ec3e16bc9cc8e258d6a80c6307927fd2cdcfa15d37894a4bc702bf0c082","downloaded_from":"2026-09-10T01:36:11.044Z","last_downloaded_at":"2026-09-10T01:36:11.044Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481082","source_sha256":"539158f492ac3dfa8df67f2966fd690b8321d481194615617fb8ff3e506afd3a"}}