Convertible debt instruments that may be settled in cash
✍ Scribed by Elaine Henry; Oscar J. Holzmann
- Publisher
- John Wiley and Sons
- Year
- 2009
- Tongue
- English
- Weight
- 71 KB
- Volume
- 20
- Category
- Article
- ISSN
- 1044-8136
No coin nor oath required. For personal study only.
✦ Synopsis
In its recently issued Financial Accounting Standards Board Staff Position (FSP) No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement), which is effective for fiscal years beginning after December 15, 2008, the staff of the FASB addressed the accounting for convertible debt instruments that may be settled in cash or other assets, or some combination thereof, upon conversion. 1 The guidance in the pronouncement was motivated by a concern that the current accounting for these instruments at inception does not reflect the debt discount corresponding to the embedded conversion feature and, therefore, it fails to properly account for interest expense in subsequent periods. 2 Prior to the effective date of this FSP, these convertibles have been accounted for under current generally accepted accounting principles (GAAP) as debt instruments only. This FSP requires that debt instruments that upon conversion may be settled in cash be separated into their debt and equity components, which are then accounted for in accordance with other applicable U.S. GAAP.