down round feature

ASC 260-10 governs the computation, presentation, and disclosure of basic and diluted earnings per share (EPS) by entities with publicly traded common stock or potential common stock (or entities in registration). Basic EPS divides income available to common stockholders (income less preferred dividends) by the weighted-average common shares outstanding (260-10-45-10 through 45-11); diluted EPS adds all dilutive potential common shares using the treasury stock method for options/warrants, the reverse treasury stock method for written puts and forward purchases, and the if-converted method for convertible securities, never assuming antidilutive conversions (260-10-45-16 through 45-45). The subtopic also covers the two-class method for participating securities, contingently issuable shares, down round features, and master limited partnership earnings per unit.

ASC 505-10 is the residual "Overall" subtopic for equity — it covers equity matters not addressed in the other Equity subtopics (stock dividends/splits, treasury stock, spinoffs) or in other Topics such as 480 and 815. Its core rules are that transactions in an entity's own capital stock (and quasi-reorganization adjustments and transfers to/from appropriated retained earnings) never affect net income, that additional paid-in capital may not be used to relieve income of charges, and that notes received for stock are generally shown as a deduction from equity rather than as an asset. It also imposes extensive disclosures on the rights and privileges of outstanding securities, convertible preferred stock, redemption requirements, and liquidation preferences.

ASC 815-40 governs contracts (freestanding or embedded) that are indexed to, and potentially settled in, an entity's own stock — warrants, written/purchased options, forward sale and purchase contracts, and conversion features. It supplies the two-part test for the derivative scope exception in 815-10-15-74(a): whether the instrument is "indexed to the entity's own stock" (two-step analysis in 815-40-15-7 through 15-7I) and whether it would be classified in stockholders' equity (conditions in 815-40-25-7 through 25-30). Equity-classified contracts stay in permanent equity with no remeasurement; contracts failing either part are assets or liabilities measured at fair value through earnings, with classification reassessed every balance sheet date.