# ASC 815-40-55: Derivatives and Hedging — Contracts in Entity's Own Equity — 55 Implementation Guidance and Illustrations

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/815/40/#55-implementation-guidance-and-illustrations)

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## ASC 815-40-55: 55 Implementation Guidance and Illustrations

[Read section](https://asc.understandingaccounting.org/asc/815/40/#55-implementation-guidance-and-illustrations)

SEC content: no

#### Implementation Guidance

##### [815-40-55-1](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-1)

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[Paragraph superseded by Accounting Standards Update No. 2020-06](https://asc.understandingaccounting.org/updates/asu-2020-06/)

##### [815-40-55-2](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-2)

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An event that causes a change in control of an entity is not within the entity's control and, therefore, if a contract requires [net cash settlement](https://asc.understandingaccounting.org/glossary/n/#net-cash-settlement "The party with a loss delivers to the party with a gain a cash payment equal to the gain, and no shares are exchanged.") upon a change in control, the contract generally must be classified as an asset or a liability.

##### [815-40-55-3](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-3)

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However, if a change-in-control provision requires that the counterparty receive, or permits the counterparty to deliver upon settlement, the same form of consideration (for example, cash, debt, or other assets) as holders of the shares underlying the contract, permanent equity classification would not be precluded as a result of the change-in-control provision. In that circumstance, if the holders of the shares underlying the contract were to receive cash in the [transaction](https://asc.understandingaccounting.org/glossary/t/#transaction "An external event involving transfer of something of value (future economic benefit) between two (or more) entities. (See FASB Concepts Statement No. 6, Elements of Financial Statements.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9An external event involving transfer of something of value (future economic benefit) between two (or more) entities.") causing the change in control, the counterparty to the contract could also receive cash based on the value of its position under the contract.

##### [815-40-55-4](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-4)

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If, instead of cash, holders of the shares underlying the contract receive other forms of consideration (for example, debt), the counterparty also must receive debt (cash in an amount equal to the [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") of the debt would not be considered the same form of consideration as debt).

##### [815-40-55-5](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-5)

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Similarly, a change-in-control provision could specify that if all stockholders receive stock of an acquiring entity upon a change in control, the contract will be indexed to the shares of the purchaser (or issuer in a business combination accounted for as a pooling of interests) specified in the business combination agreement, without affecting classification of the contract.

Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:

[105-10-65-10](https://asc.understandingaccounting.org/asc/105/10/#105-10-65-10)Similarly, a change-in-control provision could specify that if all stockholders receive stock of an acquiring entity upon a change in control, the contract will be indexed to the shares of the purchaser specified in the business combination agreement, without affecting classification of the contract.

##### [815-40-55-6](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-6)

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In the event of nationalization, cash compensation would be the consideration for the expropriated assets and, as a result, a counterparty to the contract could receive only cash, as is the case for a holder of the stock underlying the contract. Because the contract counterparty would receive the same form of consideration as a stockholder, a contract provision requiring net cash settlement in the event of nationalization does not preclude equity classification of the contract.

##### [815-40-55-7](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-7)

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The following guidance reflects the application of this Subtopic to certain freestanding derivative financial instruments that are indexed to, and potentially settled in, an entity's own stock, specifically:

1.  a
    
    [Subparagraph superseded by Accounting Standards Update No. 2020-06](https://asc.understandingaccounting.org/updates/asu-2020-06/).
    
2.  b
    
    Forward sale contracts, written call options or warrants, and purchased put options
    
3.  c
    
    Purchased call options
    
4.  d
    
    Detachable stock purchase warrants
    
5.  e
    
    Put warrants.

##### [815-40-55-8](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-8)

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[Paragraph superseded by Accounting Standards Update No. 2020-06](https://asc.understandingaccounting.org/updates/asu-2020-06/).

##### [815-40-55-9](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-9)

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[Paragraph superseded by Accounting Standards Update No. 2020-06](https://asc.understandingaccounting.org/updates/asu-2020-06/).

##### [815-40-55-10](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-10)

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[Paragraph superseded by Accounting Standards Update No. 2020-06](https://asc.understandingaccounting.org/updates/asu-2020-06/).

##### [815-40-55-11](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-11)

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[Paragraph superseded by Accounting Standards Update No. 2020-06](https://asc.understandingaccounting.org/updates/asu-2020-06/).

##### [815-40-55-12](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-12)

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[Paragraph superseded by Accounting Standards Update No. 2020-06](https://asc.understandingaccounting.org/updates/asu-2020-06/).

##### [815-40-55-13](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-13)

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The issuing entity (the seller) agrees to sell shares of its stock to the buyer of the contract at a specified price at some future date. The contract may be settled by [physical settlement](https://asc.understandingaccounting.org/glossary/p/#physical-settlement "The party designated in the contract as the buyer delivers the full stated amount of cash to the seller, and the seller delivers the full stated number of shares to the buyer."), [net share settlement](https://asc.understandingaccounting.org/glossary/n/#net-share-settlement "The party with a loss delivers to the party with a gain shares with a current fair value equal to the gain."), or net cash settlement, or the issuing entity or counterparty may have a choice of settlement methods. The guidance in this Subtopic would be applied as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-AD8DF8BF-2088-47A2-A24B-B3E053FE2AA4-low.gif)
    
    One Settlement Method Entity Choice Counterparty Choice Physical (a) Net Share Net Cash Net Share or Physical(a) Net Share or Net Cash Net Cash or Physical(a) Net Share or Physical(a) Net Share or Net Cash Net Cash or Physical(a) (1) Initial Classification: Equity (b) x x x x x x Asset or Liability x x x "(2) Initial Measurement, Subsequent Classification and Measurement:" "Fair value, permanent equity-no changes in fair value(b)" x x x x(c) x(c) x "Fair value, asset or liability- adjusted for changes in fair value (d)" x x(e) x(e) (a) Physical settlement of the contract requires that the entity deliver shares to the holder in exchange for cash. (b) Equity or temporary equity classification is only appropriate if the conditions in Section 815-40-25 do not require asset or liability classification of the contract. (c) "If the contracts are ultimately settled in net cash, the amount of cash paid or received should be reported as a reduction of, or an addition to, contributed capital." (d) Subsequent changes in fair value should be reported in earnings and disclosed in the financial statements. (e) "If the contracts are ultimately settled in shares, any gains or losses on those contracts should continue to be included in earnings." "Note: In all cases above, the contracts must be reassessed at each reporting period in order to determine whether or not the contract must be reclassified."

##### [815-40-55-14](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-14)

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The entity (the buyer) purchases call options that provide it with the right, but not the obligation, to buy from the seller, shares of the entity's stock at a specified price. If the options are exercised, the contract may be settled by physical settlement, net share settlement, or net cash settlement, or the issuing entity or the counterparty may have a choice of settlement methods. The entity should follow the preceding table in accounting for purchased call options.

##### [815-40-55-15](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-15)

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An entity issues senior subordinated notes with a detachable warrant that gives the holder both the right to purchase 6,250 shares of the entity's stock for $75 per share and the right (that is, a put) to require that the entity repurchase all or any portion of the warrant for at least $2,010 per share at a date several months after the maturity of the notes in about 7 years. The proceeds should be allocated between the debt liability and the warrant based on their relative fair values, and the resulting discount should be amortized in accordance with Subtopic 835-30. The warrants should be considered, in substance, debt and accounted for as a liability because the settlement alternatives for the warrants do not have the same economic value attached to them and they provide the holder with a guaranteed return in cash that is significantly in excess of the value of the share-settlement alternative on the issuance date.

##### [815-40-55-16](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-16)

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Put warrants are frequently issued concurrently with debt securities of the entity, are detachable from the debt, and may be exercisable only under specified conditions. The put feature of the instrument may expire under varying circumstances, for example, with the passage of time or if the entity has a public stock offering. Under Subtopic 470-20, a portion of the proceeds from the issuance of debt with detachable warrants must be allocated to those warrants.

##### [815-40-55-17](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-17)

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Put warrants are instruments with characteristics of both warrants and put options. The holder of the instrument is entitled to do any of the following:

1.  a
    
    Exercise the warrant feature to acquire the common stock of the entity at a specified price
    
2.  b
    
    Exercise the put option feature to put the instrument back to the entity for a cash payment
    
3.  c
    
    Exercise both the warrant feature to acquire the common stock and the put option feature to put that stock back to the entity for a cash payment.

##### [815-40-55-18](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-18)

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Because the contract gives the counterparty the choice of cash settlement or settlement in shares, entities should report the proceeds from the issuance of put warrants as liabilities and subsequently measure the put warrants at fair value with changes in fair value reported in earnings as required by Topic 480. That is, a put warrant that embodies an obligation to repurchase the issuer's equity shares, or is indexed to such an obligation, and that requires or may require a transfer of assets is within the scope of that Topic and therefore is to be recognized as a liability.

##### [815-40-55-19](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-19)

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[Paragraphs 815-40-55-19 through 55-25 not used](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-19).

#### Illustrations

##### [815-40-55-25A](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-25A)

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The Examples in paragraphs

[815-40-55-26 through 55-48](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-26)

illustrate the application of the guidance beginning in paragraph [815-40-15-5](https://asc.understandingaccounting.org/asc/815/40/#815-40-15-5).

##### [815-40-55-26](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-26)

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Entity A issues warrants that permit the holder to buy 100 shares of its common stock for $10 per share. The warrants have 10-year terms; however, they only become exercisable if Entity A completes an initial public offering.The warrants are considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The [exercise contingency](https://asc.understandingaccounting.org/glossary/e/#exercise-contingency "A provision that entitles the entity (or the counterparty) to exercise an equity-linked financial instrument (or embedded feature) based on changes in an underlying, including the occurrence (or nonoccurrence) of a specified event. Provisions that accelerate the timing of the entity's (or the counterparty's) ability to exercise an instrument and provisions that extend the length of time that an instrument is exercisable are examples of exercise contingencies.") (that is, the initial public offering) is not an observable market or an observable index, so the evaluation of Step 1 does not preclude the warrants from being considered indexed to the entity's own stock. Proceed to Step 2.
    
2.  b
    
    Upon exercise, the settlement amount would equal the difference between the fair value of a fixed number of the entity's equity shares (100 shares) and a fixed strike price ($10 per share).

##### [815-40-55-27](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-27)

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Entity A issues warrants that permit the holder to buy 100 shares of its common stock for $10 per share. The warrants have 10-year terms; however, they only become exercisable after Entity A accumulates $100 million in sales to third parties. The warrants are considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The exercise contingency (that is, the accumulation of $100 million in sales to third parties) is an observable index. However, it can only be calculated or measured by reference to Entity A's sales, so the evaluation of Step 1 does not preclude the warrants from being considered indexed to the entity's own stock. Proceed to Step 2.
    
2.  b
    
    Step 2. Upon exercise, the settlement amount would equal the difference between the fair value of a fixed number of the entity's equity shares (100 shares) and a fixed strike price ($10 per share).

##### [815-40-55-28](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-28)

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Entity A issues warrants that permit the holder to buy 100 shares of its common stock for $10 per share. The warrants have 10-year terms; however, they only become exercisable if the Standard & Poor's S&P 500 Index increases 500 points within any given calendar year during that 10-year period.The warrants are not considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The exercise contingency (that is, the increase of 500 points in Standard & Poor's S&P 500 Index) is based on an observable index that is not measured solely by reference to the issuer's own operations.
    
2.  b
    
    Step 2. It is not necessary to evaluate Step 2.

##### [815-40-55-29](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-29)

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Entity A issues warrants that permit the holder to buy 100 shares of its common stock in exchange for one ounce of gold. The warrants have 10-year terms; however, they only become exercisable if Entity A completes an initial public offering. The warrants are not considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The exercise contingency (that is, the initial public offering) is not an observable market or an observable index, so the evaluation of Step 1 does not preclude the warrants from being considered indexed to the entity's own stock. Proceed to Step 2.
    
2.  b
    
    Step 2. The settlement amount would not equal the difference between the fair value of a fixed number of the entity's equity shares (100 shares) and a fixed strike price. Although the number of shares that would be issued at settlement is fixed, the strike price varies based on the price of one ounce of gold. The price of gold is not an input to the fair value of a fixed-for-fixed option on equity shares.

##### [815-40-55-30](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-30)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:76c84c5e8db3237109d1686768ff3c6e2806275652601d3c70f60ffb07376c83

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A issues warrants that permit the holder to buy 100 shares of its common stock for $10 per share. The warrants have 10-year terms and are exercisable at any time. However, the terms of the warrants specify that if there is an announcement of a merger involving Entity A, the strike price of the warrants will be adjusted to offset the effect of the merger announcement on the net change in the fair value of the warrants and of an offsetting hedge position in the underlying shares. The strike price adjustment must be determined using commercially reasonable means based on an assumption that the counterparty has entered into a hedge position in the underlying shares to offset the share price exposure from the warrants. That strike price adjustment is not affected by the counterparty's actual hedging position (for example, the strike price adjustment does not differ in circumstances when the counterparty is over-hedged or under-hedged). The warrants are considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The instruments do not contain an exercise contingency. Proceed to Step 2.
    
2.  b
    
    Step 2. The settlement amount would equal the difference between the fair value of a fixed number of the entity's equity shares (100 shares) and a fixed strike price ($10 per share), unless there is a merger announcement. If there is a merger announcement, the settlement amount would be adjusted to offset the effect of the merger announcement on the fair value of the warrants. In that circumstance, the only variables that could affect the settlement amount would be inputs to the fair value of a fixed-for-fixed option on equity shares. For further discussion, see paragraphs [815-40-15-7E](https://asc.understandingaccounting.org/asc/815/40/#815-40-15-7E) and [815-40-15-7G](https://asc.understandingaccounting.org/asc/815/40/#815-40-15-7G).

##### [815-40-55-31](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-31)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:c4a3a9eb92ab147fe0b08619af7219c54a9e8d973c7efe62e22eceda2dee880a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A issues warrants that permit the holder to buy 100 shares of its common stock for an initial price of $10 per share. The warrants have 10-year terms and are exercisable at any time. However, the terms of the warrants specify that the strike price is reduced by $0.50 after any year in which Entity A does not achieve revenues of at least $100 million. The warrants are not considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The instruments do not contain an exercise contingency. Proceed to Step 2.
    
2.  b
    
    Step 2. The settlement amount would not equal the difference between the fair value of a fixed number of the entity's equity shares (100 shares) and a fixed strike price. Although the number of shares that would be issued at settlement is fixed, the strike price would be adjusted after any year in which Entity A does not achieve revenues of at least $100 million. The amount of an entity's annual revenues is not an input to the fair value of a fixed-for-fixed option on equity shares.

##### [815-40-55-32](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-32)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:fda922babb932b6a45aed8dacadc39c9206fe3d41504843c175dfbd446d2d124

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A purchases net-settled call options that permit it to buy 100 shares of its common stock for $10 per share. However, the maximum appreciation on the call options is capped when Entity A's stock price reaches $15 per share (that is, the counterparty's maximum obligation is $500 \[($15 − $10) x 100 shares\]). The call options have 10-year terms and are exercisable at any time. The call options are considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The instruments do not contain an exercise contingency. Proceed to Step 2.
    
2.  b
    
    Step 2. The settlement amount would equal the difference between the fair value of a fixed number of the entity's equity shares (100 shares) and a fixed strike price when Entity A's stock price is between the $10 stated exercise price and the $15 price cap. However, whenever Entity A's stock price exceeds $15, the strike price of the call options increases and decreases in amounts equal to the corresponding increases and decreases in Entity A's stock price, such that the intrinsic value of each call option always equals $5. Because the only variable that can affect the settlement amount is the entity's stock price, which is an input to the fair value of a fixed-for-fixed option contract, the call options are considered indexed to the entity's own stock.

##### [815-40-55-33](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-33)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:f0c05d11983152a5e0cd8fcd500b2003ec9a6c6743cb75956137f33dcca3fd9b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates the application of the guidance beginning in paragraph [815-40-15-5](https://asc.understandingaccounting.org/asc/815/40/#815-40-15-5)for a financial instrument that includes a [down round feature](https://asc.understandingaccounting.org/glossary/d/#down-round-feature "A feature in a financial instrument that reduces the strike price of an issued financial instrument if the issuer sells shares of its stock for an amount less than the currently stated strike price of the issued financial instrument or issues an equity-linked financial instrument with a strike price below the currently stated strike price of the issued financial instrument. A down round feature may reduce the strike price of a financial instrument to the current issuance price, or the reduction may be limited by a floor or on the basis of a formula that results in a price that is at a discount to the original exercise price but above the new issuance price of the shares, or may reduce the strike price to below the current issuance price. A standard antidilution provision is not considered a down round feature."). Entity A issues warrants that permit the holder to buy 100 shares of its common stock for $10 per share. The warrants have 10-year terms and are exercisable at any time. However, the terms of the warrants specify both of the following:

1.  a
    
    If the entity sells shares of its common stock for an amount less than $10 per share, the strike price of the warrants is reduced to equal the issuance price of those shares.
    
2.  b
    
    If the entity issues an equity-linked financial instrument with a strike price below $10 per share, the strike price of the warrants is reduced to equal the strike price of the newly issued equity-linked financial instrument.

##### [815-40-55-34](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-34)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:09f7e9f69ec1c43a0b3b6242c6590a890a5267eabf6d920325988fcea7ad5b20

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The warrants are considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The instruments do not contain an exercise contingency. Proceed to Step 2.
    
2.  b
    
    Step 2. In accordance with paragraph [815-40-15-5D](https://asc.understandingaccounting.org/asc/815/40/#815-40-15-5D), when classifying a financial instrument with a down round feature, an entity shall exclude that feature when considering whether the instrument is indexed to the entity's own stock for the purposes of applying paragraphs
    
    [815-40-15-7C through 15-7I](https://asc.understandingaccounting.org/asc/815/40/#815-40-15-7C)
    
    (Step 2). The instrument does not contain any other features to be assessed under Step 2.

##### [815-40-55-34A](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-34A)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:818a4b444db6269b2624fb50e34b781f6c8e8dd3d7447f3ef47606dcd391c0ef

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


See paragraph [260-10-45-12B](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-12B) for earnings-per-share considerations, paragraph [260-10-25-1](https://asc.understandingaccounting.org/asc/260/10/#260-10-25-1) for recognition considerations, and paragraphs [505-10-50-3 through 50-3A](https://asc.understandingaccounting.org/asc/505/10/#505-10-50-3) for disclosure considerations.

##### [815-40-55-35](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-35)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:c4fbacb749568d6174b93fd6f90b20fa2b0616eff2931f490e964acfabb14642

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A issues warrants that permit the holder to buy 100 shares of its common stock for $10 per share. The warrants have 10-year terms and are exercisable at any time. However, the terms of the warrants specify that if Entity A does not obtain regulatory approval of a particular drug compound within 5 years, the holder can surrender the warrants to Entity A for $2 per warrant (settleable in shares). The contingently puttable warrants are not considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The instruments do not contain an exercise contingency. Proceed to Step 2.
    
2.  b
    
    Step 2. The settlement amount would equal the difference between the fair value of a fixed number of the entity's equity shares (100 shares) and a fixed strike price ($10 per share), unless regulatory approval of a particular drug compound is not obtained within 5 years. If that approval is not obtained within the allotted time period, the holder could elect to surrender the warrants to Entity A in exchange for $2 per warrant. The contingent obligation to settle the warrants by transferring consideration with a fixed monetary value if regulatory approval of a particular drug compound is not obtained within a specified time period does not represent an input to the fair value of a fixed-for-fixed option on equity shares. A freestanding equity-linked instrument that provides for a fixed payoff upon the occurrence of a contingent event which is not based on the issuer's share price is not indexed to an entity's own stock.

##### [815-40-55-36](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-36)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:0405b06beb5f11aef5ef60c8caf65eee3373bccb4f120799fbf56821d9970563

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A, whose functional currency is U.S. dollars (USD), issues warrants with a strike price denominated in Canadian dollars (CAD). The warrants permit the holder to buy 100 shares of its common stock for CAD 10 per share. Entity A's shares trade on an exchange on which trades are denominated in CAD. The warrants have 10-year terms and are exercisable at any time. The warrants are not considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The instruments do not contain an exercise contingency. Proceed to Step 2.
    
2.  b
    
    Step 2. The strike price of the warrants is denominated in a currency other than the entity's functional currency, so the warrants are not considered indexed to the entity's own stock.

##### [815-40-55-37](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-37)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:778ed55b33ecf97ede21324da3d2aae4bf5cba07a8f28358653c4298dbd59781

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A enters into a forward contract to sell 100 shares of its common stock for $10 per share in 1 year. Historically, Entity A has paid a dividend of $0.10 per quarter on its common shares. Under the terms of the forward contract, if dividends per common share differ from $0.10 during any 3-month period, the strike price of the forward contract will be adjusted to offset the effect of the dividend differential (actual dividend versus $0.10) on the fair value of the instrument. Additionally, the terms of the forward contract provide for an adjustment to the strike price, using commercially reasonable means, to offset the effect of any increased cost of borrowing Entity A's shares in the stock loan market on the fair value of the instrument. The forward contract is considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The instrument does not contain an exercise contingency. Proceed to Step 2.
    
2.  b
    
    Step 2. The only circumstances in which the settlement amount will not equal the difference between the fair value of 100 shares and $1,000 ($10 per share) are if dividends per common share differ from $0.10 during any 3-month period or if there is an increased cost of borrowing Entity A's shares in the stock loan market. The adjustments to the strike price resulting from those events are intended to offset their effects on the instrument's fair value. In those circumstances, the only variables that could affect the settlement amount (dividends and stock borrow cost) would be inputs to the fair value of a fixed-for-fixed forward contract on equity shares.

##### [815-40-55-38](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-38)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:cb3ff95c65b1696fceb28a31c7dc1a4be08d1eb2da4861b6d41a61c9623c002a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A enters into a net-settleable forward contract to sell 100 shares of its common stock in 1 year for an amount equal to $10 per share plus interest calculated at a variable interest rate (Federal Funds rate plus a fixed spread). The share price used to determine the settlement amount is based on the volume-weighted average daily market price of Entity A's common stock for the 30-day period before the settlement date. The forward contract is considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The instrument does not contain an exercise contingency. Proceed to Step 2.
    
2.  b
    
    Step 2. The settlement amount will not equal the difference between the fair value of a fixed number of the entity's equity shares (100 shares) and a fixed strike price. However, the only variables that cause the settlement amount to differ from a fixed-for-fixed settlement amount are the 30-day volume-weighted average daily market price of Entity A's common stock and an interest rate index. The pricing inputs of a fixed-for-fixed forward contract include the entity's stock price and interest rates. Additionally, the floating interest rate feature does not introduce a leverage factor or otherwise increase the effects of interest rate changes on the instrument's fair value.

##### [815-40-55-39](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-39)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:da9af95f5ccd24aadc0b4aca87d7d43de749fc36293ff4f3308b2db851b1f182

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A enters into a forward contract to sell 100 shares of its common stock in 1 year for an amount equal to $10 per share plus interest calculated at a variable interest rate that varies inversely with changes in the London Interbank Offered Rate (LIBOR) (similar to an "inverse floater," as described in paragraphs

[815-15-55-170 through 55-172](https://asc.understandingaccounting.org/asc/815/15/#815-15-55-170)

). The forward contract is not considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The instrument does not contain an exercise contingency. Proceed to Step 2.
    
2.  b
    
    Step 2. The settlement amount will not equal the difference between the fair value of a fixed number of the entity's equity shares (100 shares) and a fixed strike price. Although the number of shares that would be issued at settlement is fixed, the strike price varies inversely with changes in an interest rate index. The inverse floating interest rate feature increases the effects of interest rate changes on the instrument's fair value (that is, the feature increases the instrument's fair value exposure to interest rate changes) when compared to the exposure to interest rate changes of a fixed-for-fixed forward contract.

##### [815-40-55-40](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-40)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:a6bdef05f90e7286f412c52fa10d4a2c5800ca51de3babc8349661e72fefd313

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A enters into a net-settled forward contract to sell 100 shares of its common stock in 1 year for $1,000. However, the maximum amount payable to the counterparty at maturity is capped when Entity A's stock price is greater than or equal to $15 per share (that is, Entity A's maximum obligation is $500 \[($15 − $10) x 100 shares\]). Additionally, the maximum amount receivable from the counterparty at maturity is capped when Entity A's stock price is less than or equal to $5 per share (that is, the counterparty's maximum obligation is $500 \[($5 − $10) x 100 shares\]). The forward contract is considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The instrument does not contain an exercise contingency. Proceed to Step 2.
    
2.  b
    
    Step 2. The settlement amount would equal the difference between the fair value of a fixed number of the entity's equity shares (100 shares) and a fixed strike price ($1,000) when Entity A's stock price is between $5 and $15. However, whenever Entity A's stock price is greater than or equal to $15 at maturity, the amount payable to the counterparty always equals $500. Additionally, whenever Entity A's stock price is less than or equal to $5 at maturity, the amount receivable from the counterparty always equals $500. Because the only variable that can affect the settlement amount is the entity's stock price, which is an input to the fair value of a fixed-for-fixed forward contract, the instrument is considered indexed to the entity's own stock.

##### [815-40-55-41](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-41)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:d509c8c0e4a5159fa63ad250ef5665da27889c7fbd76d9fca00f05fad40a93c3

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A enters into a forward contract to sell a variable number of its common shares in 1 year for $1,000. If Entity A's stock price is equal to or less than $10 at maturity, Entity A will issue 100 shares of its common stock to the counterparty. If Entity A's stock price is greater than $10 but equal to or less than $12 at maturity, Entity A will issue a variable number of its common shares worth $1,000. Finally, if the share price is greater than $12 at maturity, Entity A will issue 83.33 shares of its common stock. The forward contract is considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The instrument does not contain an exercise contingency. Proceed to Step 2.
    
2.  b
    
    Step 2. The settlement amount will not equal the difference between the fair value of a fixed number of the entity's equity shares and a fixed strike price ($1,000). Although the strike price to be received at settlement is fixed, the number of shares to be issued to the counterparty varies based on the entity's stock price on the settlement date. Because the only variable that can affect the settlement amount is the entity's stock price, which is an input to the fair value of a fixed-for-fixed forward contract on equity shares, the instrument is considered indexed to the entity's own stock.

##### [815-40-55-42](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-42)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:64b48fa2be1e59ebe81dddbfb604f8ccdf1d8bed33c7d7d6dcfc474af3caac6a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A enters into a forward contract to sell 100 shares of its common stock for $10 per share in 1 year. Under the terms of the forward contract, the strike price of the forward contract would be adjusted to offset the resulting dilution (except for issuances and repurchases that occur upon settlement of outstanding option or forward contracts on equity shares) if Entity A does any of the following:

1.  a
    
    Distributes a stock dividend or ordinary cash dividend
    
2.  b
    
    Executes a stock split, spinoff, rights offering, or recapitalization through a large, nonrecurring cash dividend
    
3.  c
    
    Issues shares for an amount below the then-current market price
    
4.  d
    
    Repurchases shares for an amount above the then-current market price.
    

The contractual terms that adjust the forward contract's strike price are eliminating the dilution to the forward contract counterparty that would otherwise result from the occurrence of those specified dilutive events. The adjustment to the strike price of the forward contract is based on a mathematical calculation that determines the direct effect that the occurrence of such dilutive events should have on the price of the underlying shares; it does not adjust for the actual change in the market price of the underlying shares upon the occurrence of those events, which may increase or decrease for other reasons.

##### [815-40-55-43](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-43)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:d50a87cc78acea4235eda53add669bcddc1d0090f835ffa57715fe7785f8bce7

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The forward contract is considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The instrument does not contain an exercise contingency. Proceed to Step 2.
    
2.  b
    
    Step 2. The only circumstances in which the settlement amount will not equal the difference between the fair value of 100 shares and $1,000 ($10 per share) are upon the occurrence of any of the following:
    
    1.  1
        
        The distribution of a stock dividend or ordinary cash dividend
        
    2.  2
        
        The execution of a stock split, spinoff, rights offering, or recapitalization through a large, nonrecurring cash dividend
        
    3.  3
        
        The issuance of shares for an amount below the then-current market price
        
    4.  4
        
        The repurchase of shares for an amount above the then-current market price.
        

An implicit assumption in standard pricing models for equity-linked financial instruments is that such events will not occur (or that the strike price of the instrument will be adjusted to offset the dilution caused by such events). Therefore, the only variables that could affect the settlement amount in this example would be inputs to the fair value of a fixed-for-fixed option on equity shares.

##### [815-40-55-44](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-44)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:9cd2bc8ac1c00dc2146804f6de2289a87568bf12bd7f9803c4e2ad8258087059

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A, whose functional currency is US$, enters into a forward contract that requires Entity A to sell 100 shares of its common stock for 120 euros per share in 1 year. The forward contract is not considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The instrument does not contain an exercise contingency. Proceed to Step 2.
    
2.  b
    
    Step 2. The strike price of the forward contract is denominated in a currency other than the entity's functional currency, so the forward contract is not considered indexed to the entity's own stock.

##### [815-40-55-45](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-45)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:34ffdf1cae22578c460e59fd9ca6cb1b8cb629fc633ee2d3b3dd606dbe5b5a99

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A issues a contingently convertible debt instrument with a par value of $1,000 that is convertible into 100 shares of its common stock. The convertible debt instrument has a 10-year term and is convertible at any time after any of the following events occurs:

1.  a
    
    Entity A's stock price exceeds $13 per share (market price trigger).
    
2.  b
    
    The convertible debt instrument trades for an amount that is less than 98 percent of its if-converted value (parity provision).
    
3.  c
    
    There is an announcement of a merger involving Entity A.

##### [815-40-55-46](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-46)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:43154530d53d1ab104347b1b024e8480338cb16192295da04d15a2757568354b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The terms of the convertible debt instrument also include a make-whole provision. Under that provision, if Entity A is acquired for cash before a specified date, the holder of the convertible debt instrument can convert into a number of shares equal to the sum of the fixed conversion ratio (100 shares per bond) and the make-whole shares. The number of make-whole shares is determined by reference to a table with axes of stock price and time. That table was designed such that the aggregate fair value of the shares deliverable (that is, the fair value of 100 shares per bond plus the make-whole shares) would be expected to approximate the fair value of the convertible debt instrument at the settlement date, assuming no change in relevant pricing inputs (other than stock price and time) since the instrument's inception. The embedded conversion option is considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The market price trigger and parity provision exercise contingencies are based on observable markets; however, those contingencies relate solely to the market prices of the entity's own stock and its own convertible debt. Also, the merger announcement exercise contingency is not an observable market or an index. Therefore, Step 1 does not preclude the warrants from being considered indexed to the entity's own stock. Proceed to Step 2.
    
2.  b
    
    Step 2. An acquisition for cash before the specified date is the only circumstance in which the settlement amount will not equal the difference between the fair value of 100 shares and a fixed strike price ($1,000 fixed par value of the debt). The settlement amount if Entity A is acquired for cash before the specified date is equal to the sum of the fixed conversion ratio (100 shares per bond) and the make-whole shares. The number of make-whole shares is determined based on a table with axes of stock price and time, which would both be inputs in a fair value measurement of a fixed-for-fixed option on equity shares.

##### [815-40-55-47](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-47)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:7eb9fd3b2c7f4d03cbc9735a9f9127e9563de9422fd151be51f4248452e8a772

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A, whose functional currency is the Chinese yuan (CNY), issues a debt instrument denominated in CNY with a par value of CNY 1,000 that is convertible into 100 shares of its common stock. Entity A's shares only trade on an exchange in which trades are denominated in US$. Those shares do not trade on an exchange (or other established marketplace) in which trades are denominated in CNY. The convertible debt instrument has a 10-year term and is convertible at any time. The embedded conversion option is considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The embedded conversion option does not contain an exercise contingency. Proceed to Step 2.
    
2.  b
    
    Step 2. Upon exercise of the embedded conversion option, the settlement amount would equal the difference between the fair value of a fixed number of the entity's equity shares (100 shares) and a fixed strike price denominated in its functional currency (CNY 1,000 fixed par value of the debt). The determination of whether the embedded conversion option is indexed to the entity's own stock is not affected by the currency (or currencies) in which the underlying shares trade.

##### [815-40-55-48](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-48)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:cb625c3484316d03e0a927aa40025043bb351ee3cf1b7739e022cd4f4da5fdcd

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A issues a security to investors for purposes of establishing a market-based measure of the grant-date fair value of a grant of stock options issued in a share-based payment transaction. Under the terms of that market-based stock option valuation instrument, Entity A is obligated to make variable quarterly payments to the investors that are a function of the net intrinsic value received by a pool of Entity A's grantees, based on actual stock option exercises by those grantees each period. The market-based stock option valuation instrument has a 10-year term, consistent with the contractual term of the underlying stock options. The market-based stock option valuation instrument is not considered indexed to Entity A's own stock based on the following evaluation:

1.  a
    
    Step 1. The analysis of the exercise contingency (or contingencies) depends on the particular terms and features of the instrument. However, as indicated in Step 2 below, a market-based stock option valuation instrument would not be considered indexed to the entity's own stock.
    
2.  b
    
    Step 2. The settlement amount will not equal the difference between the fair value of a fixed number of the entity's equity shares and a fixed strike price. The instrument provides for variable quarterly payments to investors that are based on actual stock option exercises for the period. Because a variable that affects the instrument's settlement amount is stock option exercise behavior, which is not an input to the fair value of a fixed-for-fixed option or forward contract on equity shares, the instrument is not considered indexed to the entity's own stock.

##### [815-40-55-49](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-49)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:f407269d6d35eff1b80b7930e0346d47120c1a4ea22eb7e616c203362d55d2c5

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates the application of the guidance in paragraphs

[815-40-35-14 through 35-17](https://asc.understandingaccounting.org/asc/815/40/#815-40-35-14)

. Entity A issues warrants that permit the holder to buy 100 shares of its common stock for $10 per share. The warrants have a 10-year term and are exercisable at any time. At issuance, Entity A determines that the warrants are equity classified in accordance with this Subtopic. Prior to the modifications described in Cases A, B, and C, the warrants have not been modified since issuance and remain equity classified.

##### [815-40-55-50](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-50)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:904ef6c29fb921dcff4b7e873e5a57b6929cf09e16c59fec3643d8c81db6b28c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A reduces the exercise price of the warrants to $9 per share for a 60-day period to induce exercise of the outstanding warrants. Entity A determines that the warrants remain equity classified in accordance with this Subtopic after the modification. Entity A considers the guidance in paragraphs

[815-40-35-14 through 35-15](https://asc.understandingaccounting.org/asc/815/40/#815-40-35-14)

and determines that the circumstances of the warrant modification indicate that the modification is executed in contemplation of an equity offering (that is, to induce the imminent exercise of the outstanding warrants and raise equity capital). Entity A concludes that the incremental fair value of the outstanding warrants is an incremental cost directly attributable to a proposed equity offering. Entity A recognizes the incremental fair value of the outstanding warrants as an equity issuance cost in accordance with paragraph [815-40-35-17(a)](https://asc.understandingaccounting.org/asc/815/40/#815-40-35-17). At the date on which the modification is executed by Entity A and the warrant holder, Entity A recognizes deferred costs of an offering (calculated in accordance with paragraph [815-40-35-16](https://asc.understandingaccounting.org/asc/815/40/#815-40-35-16)) to be charged against the gross proceeds of the offering. See paragraphs

[815-40-50-5 through 50-6](https://asc.understandingaccounting.org/asc/815/40/#815-40-50-5)

and [505-10-50-3](https://asc.understandingaccounting.org/asc/505/10/#505-10-50-3) for disclosure guidance.

##### [815-40-55-51](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-51)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:085ca1e8a0075a9aed40742266c3fcb3d1862a9c98340fab058b851d4042f731

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A extends the term of the outstanding warrants, which results in an increase in the fair value of the outstanding warrants. Entity A determines that the warrants remain equity classified in accordance with this Subtopic after the modification. The warrant holder is a nonemployee investor that has no other commercial relationship with Entity A. The modification is not executed in contemplation of an imminent equity offering or a financing transaction. Entity A considers the guidance in paragraphs

[815-40-35-14 through 35-15](https://asc.understandingaccounting.org/asc/815/40/#815-40-35-14)

and determines that the circumstances of the warrant modification do not indicate that there are other transactions entered into contemporaneously or in contemplation of the warrant modification or other rights and privileges obtained or obligations incurred to achieve an overall economic effect. Entity A concludes that the warrant modification is not related to a financing or compensation for goods and services and is not within the scope of another Topic. At the date on which Entity A and the warrant holder execute the modification, Entity A recognizes the incremental fair value of the outstanding warrants as a dividend to the warrant holder in accordance with paragraph [815-40-35-17(d)](https://asc.understandingaccounting.org/asc/815/40/#815-40-35-17). See paragraphs [260-10-45-15](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-15) and

[260-10-45-22 through 45-27](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-22)

for earnings-per-share guidance and paragraphs

[815-40-50-5 through 50-6](https://asc.understandingaccounting.org/asc/815/40/#815-40-50-5)

and [505-10-50-3](https://asc.understandingaccounting.org/asc/505/10/#505-10-50-3) for disclosure guidance.

##### [815-40-55-52](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-52)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:39:14.482Z to 2026-09-10T01:39:14.482Z

Record version: sha256:f8bab875a6981a9c8a75c2ec8f8011a533fa9e7ea949478d67657078cddd6080

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Entity A reduces the exercise price of the warrants to $8 per share for the remaining term as a consideration for certain services received from the warrant holder. Entity A determines that the warrants remain equity classified in accordance with this Subtopic after the modification. Entity A considers the guidance in paragraphs

[815-40-35-14 through 35-15](https://asc.understandingaccounting.org/asc/815/40/#815-40-35-14)

and determines that the circumstances of the warrant modification indicate that the modification is executed to compensate the warrant holder for the services provided to Entity A. Because the warrant modification is executed to compensate the warrant holder in a [share-based payment arrangement](https://asc.understandingaccounting.org/glossary/s/#share-based-payment-arrangements "An arrangement under which either of the following conditions is met: One or more suppliers of goods or services (including employees) receive awards of equity shares, equity share options, or other equity instruments. The entity incurs liabilities to suppliers that meet either of the following conditions: The amounts are based, at least in part, on the price of the entity's shares or other equity instruments. (The phrase at least in part is used because an award may be indexed to both the price of the entity's shares and something other than either the price of the entity's shares or a market, performance, or service condition.) The awards require or may require settlement by issuance of the entity's shares. The term shares includes various forms of ownership interest that may not take the legal form of securities (for example, partnership interests), as well as other interests, including those that are liabilities in substance but not in form. Equity shares refers only to shares that are accounted for as equity. Also called share-based compensation arrangements."), Entity A accounts for that modification by applying the requirements in Topic 718 (that is, the guidance in paragraphs

[815-40-35-16 through 35-17](https://asc.understandingaccounting.org/asc/815/40/#815-40-35-16)

is not applicable).