# ASC 815-15-30: Derivatives and Hedging — Embedded Derivatives — 30 Initial Measurement Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/815/15/#30-initial-measurement) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:36:11.044Z to 2026-09-10T01:36:11.044Z Record version: sha256:e4a95ec3e16bc9cc8e258d6a80c6307927fd2cdcfa15d37894a4bc702bf0c082 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-15-30: 30 Initial Measurement [Read section](https://asc.understandingaccounting.org/asc/815/15/#30-initial-measurement) SEC content: no #### Hybrid Instruments That Are Not Separated ##### [815-15-30-1](https://asc.understandingaccounting.org/asc/815/15/#815-15-30-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:11.044Z to 2026-09-10T01:36:11.044Z Record version: sha256:db1f733d249341ba31da406acc58f69a4c28e51c0ab44a7a8f0a526a1d6de1bd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall measure both of the following initially at [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date."): 1. a A hybrid financial instrument that under paragraph [815-15-25-1](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-1) would be required to be separated into a host contract and a [derivative instrument](https://asc.understandingaccounting.org/glossary/d/#derivative-instrument "Paragraphs 815-10-15-83815-10-15-84815-10-15-85815-10-15-86815-10-15-87815-10-15-88815-10-15-89815-10-15-90815-10-15-91815-10-15-92815-10-15-93815-10-15-94815-10-15-95815-10-15-96815-10-15-97815-10-15-98815-10-15-99815-10-15-100815-10-15-101815-10-15-102815-10-15-103815-10-15-104815-10-15-105815-10-15-106815-10-15-107815-10-15-108815-10-15-109815-10-15-110815-10-15-111815-10-15-112815-10-15-113815-10-15-114815-10-15-115815-10-15-116815-10-15-117815-10-15-118815-10-15-119815-10-15-120815-10-15-121815-10-15-122815-10-15-123815-10-15-124815-10-15-125815-10-15-126815-10-15-127815-10-15-128815-10-15-129815-10-15-130815-10-15-131815-10-15-132815-10-15-133815-10-15-134815-10-15-135815-10-15-136815-10-15-137815-10-15-138815-10-15-139 define the term 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](https://asc.understandingaccounting.org/glossary/h/#hybrid-instrument "A contract that embodies both an embedded derivative and a host contract.") if an entity cannot reliably identify and measure the [embedded derivative](https://asc.understandingaccounting.org/glossary/e/#embedded-derivative "Implicit or explicit terms that affect some or all of the cash flows or the value of other exchanges required by a contract in a manner similar to a derivative instrument.") that paragraph [815-15-25-1](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-1) requires be separated from the host contract. #### Hybrid Instruments That Are Separated ##### [815-15-30-2](https://asc.understandingaccounting.org/asc/815/15/#815-15-30-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:11.044Z to 2026-09-10T01:36:11.044Z Record version: sha256:9a6918ec26add3b4e9a96972d1a140c9f3b48f9d95233f6416d84fa14ba8254a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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.) ##### [815-15-30-3](https://asc.understandingaccounting.org/asc/815/15/#815-15-30-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:11.044Z to 2026-09-10T01:36:11.044Z Record version: sha256:1a2e26ac2ddbb092074862e370103ae567a2c3783a8580cfa5b6ebfe1e18bcbc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [815-15-30-4](https://asc.understandingaccounting.org/asc/815/15/#815-15-30-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:11.044Z to 2026-09-10T01:36:11.044Z Record version: sha256:65fa3227283fa9e597be83667aa3a1037746589e0468bbadab6760efa543bed1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In separating a non-option embedded derivative from the host contract under paragraph [815-15-25-1](https://asc.understandingaccounting.org/asc/815/15/#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](https://asc.understandingaccounting.org/glossary/n/#notional-amount "A number of currency units, shares, bushels, pounds, or other units specified in a derivative instrument. Sometimes other names are used. For example, the notional amount is called a face amount in some contracts.") and an [underlying](https://asc.understandingaccounting.org/glossary/u/#underlying "A specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, or other variable (including the occurrence or nonoccurrence of a specified event such as a scheduled payment under a contract). An underlying may be a price or rate of an asset or liability but is not the asset or liability itself. An underlying is a variable that, along with either a notional amount or a payment provision, determines the settlement of a derivative instrument.") 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. ##### [815-15-30-5](https://asc.understandingaccounting.org/asc/815/15/#815-15-30-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:11.044Z to 2026-09-10T01:36:11.044Z Record version: sha256:b8c0c4e0dbd589459c4bad97a77fcd4600b14a264de7a47d5000e5e54e49ef29 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In separating a non-option embedded derivative from the host contract under paragraph [815-15-25-1](https://asc.understandingaccounting.org/asc/815/15/#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. ##### [815-15-30-6](https://asc.understandingaccounting.org/asc/815/15/#815-15-30-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:11.044Z to 2026-09-10T01:36:11.044Z Record version: sha256:25f3e082e01d780613a399c6dd09695c05c49a3ce7eef3a73637e08480a9b637 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/asc/815/15/#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.