# ASC 815-45-25: Derivatives and Hedging — Weather Derivatives — 25 Recognition

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/815/45/#25-recognition)

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## ASC 815-45-25: 25 Recognition

[Read section](https://asc.understandingaccounting.org/asc/815/45/#25-recognition)

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#### Nontrading Activities

##### [815-45-25-1](https://asc.understandingaccounting.org/asc/815/45/#815-45-25-1)

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An entity that enters into a non-exchange-traded forward-based [weather derivative](https://asc.understandingaccounting.org/glossary/w/#weather-derivative "A forward-based or option-based contract for which settlement is based on a climatic or geological variable. One example of such a variable is the occurrence or nonoccurrence of a specified amount of snow at a specified location within a specified period of time.") in connection with nontrading activities shall account for the contract by applying an intrinsic value method (as discussed in Section 815-45-30). See Example 1 (paragraph [815-45-55-7](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-7)) for an illustration of the accounting for an example degree-day forward contract.

##### [815-45-25-2](https://asc.understandingaccounting.org/asc/815/45/#815-45-25-2)

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An entity that purchases a non-exchange-traded option-based weather derivative in connection with nontrading activities shall recognize an asset.

##### [815-45-25-3](https://asc.understandingaccounting.org/asc/815/45/#815-45-25-3)

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An entity that sells or writes a non-exchange-traded option-based weather derivative shall recognize a liability.

##### [815-45-25-4](https://asc.understandingaccounting.org/asc/815/45/#815-45-25-4)

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[Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/).

#### Trading Activities

##### [815-45-25-5](https://asc.understandingaccounting.org/asc/815/45/#815-45-25-5)

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All weather derivative contracts entered into under [trading](https://asc.understandingaccounting.org/glossary/t/#trading "An activity involving securities sold in the near term and held for only a short period of time. The term trading contemplates a holding period generally measured in hours and days rather than months or years. See paragraph 948-310-40-1 for clarification of the term trading for a mortgage banking entity.") or speculative activities shall be accounted for as assets or liabilities.

##### [815-45-25-6](https://asc.understandingaccounting.org/asc/815/45/#815-45-25-6)

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For purposes of this Subtopic, an entity shall be considered to be involved in trading or speculative activities if it enters into weather derivative contracts with the objective of generating profits on or from exposures to shifts or changes in climatic or geological conditions. See paragraphs

[815-45-55-1 through 55-6](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-1)

for specific guidance.