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EITF abs00-19

EITF abs00-19

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Published by: lacegear on Mar 17, 2010
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EITF ABSTRACTSIssue No. 00-19Title:
Accounting for Derivative Financial Instruments Indexed to, and PotentiallySettled in, a Company's Own Stock 
Dates Discussed:
November 12–13, 1987; January 19, 1995; March 23, 1995; May 18–19, 1995; July 20–21, 1995; September 20–21, 1995; January 18,1996; July 18, 1996; September 18–19, 1996; November 14, 1996;January 23, 1997; September 23–24, 1998; November 18–19, 1998;January 21, 1999; March 19–20, 1999; March 16, 2000; July 19–20,2000; September 20–21, 2000; November 15–16, 2000;January 17-18, 2001; November 14–15, 2001; January 23–24, 2002;March 20–21, 2002
References:
FASB Statement No. 3,
 Reporting Accounting Changes in InterimFinancial Statements
FASB Statement No. 80,
 Accounting for Futures Contracts
 FASB Statement No. 123,
 Accounting for Stock-Based Compensation
 FASB Statement No. 123 (revised 2004),
Share-Based Payment 
FASB Statement No. 128,
 Earnings per Share
 FASB Statement No. 129,
 Disclosure of Information about CapitalStructure
FASB Statement No. 133,
 Accounting for Derivative Instruments and  Hedging Activities
FASB Statement No. 150,
 Accounting for Certain Financial Instrumentswith Characteristics of both Liabilities and Equity
FASB Statement No. 155,
 Accounting for Certain Hybrid Financial Instruments
FASB Interpretation No. 45,
Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of  Indebtedness of Others
FASB Concepts Statement No. 6,
 Elements of Financial Statements
 FASB Staff Position FAS123(R)-1, “Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange forEmployee Services under FASB Statement No. 123(R)”FASB Staff Position FAS150-1, “Issuer’s Accounting for FreestandingFinancial Instruments Composed of More Than One Option or ForwardContract Embodying Obligations under FASB Statement No. 150”FASB Staff Position EITF00-19-1, “Application of EITF Issue No. 00-19to Freestanding Financial Instruments Originally Issued as EmployeeCompensation”FASB Discussion Memorandum,
 Recognition and Measurement of Financial Instruments,
November 18, 1991
Copyright © 2006, Financial Accounting Standards Board Not for redistributionPage 1
 
 
APB Opinion No. 9,
 Reporting the Results of Operations
 APB Opinion No. 14,
 Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants
 APB Opinion No. 20,
 Accounting Changes
 APB Opinion No. 21,
 Interest on Receivables and Payables
 APB Opinion No. 22,
 Disclosure of Accounting Policies
 SEC Accounting Series Release No. 268,
Presentation in FinancialStatements of "Redeemable Preferred Stocks"
 
ISSUE
1. For a number of business reasons, a company may enter into contracts that areindexed to, and sometimes settled in, its own stock. Examples of these contracts includewritten put options, written call options (and warrants), purchased put options, purchasedcall options, forward sale contracts, and forward purchase contracts. These contractsmay be settled using a variety of settlement methods, or the issuing company orcounterparty may have a choice of settlement methods. The settlement methods are:
 
Physical settlement—the party designated in the contract as the buyer delivers the fullstated amount of cash to the seller, and the seller delivers the full stated number of shares to the buyer
 
Net-share settlement—the party with a loss delivers to the party with a gain shareswith a current fair value equal to the gain
 
Net-cash settlement—the party with a loss delivers to the party with a gain a cashpayment equal to the gain, and no shares are exchanged.2. The contracts described above may be either freestanding or embedded in anotherfinancial instrument. A freestanding contract is entered into separate and apart from anyof the company's other financial instruments or equity transactions, or it is entered into inconjunction with some other transaction and is legally detachable and separatelyexercisable.3. This Issue applies only to freestanding derivative financial instruments (forexample, forward contracts, options, and warrants). This Issue applies to security price
Copyright © 2006, Financial Accounting Standards Board Not for redistributionPage 2
 
 
guarantees or other financial instruments indexed to, or otherwise based on, the price of the company's stock that are issued in connection with a purchase business combinationand that are accounted for as contingent consideration only if those instruments meet thecriteria in Issue No. 97-8, "Accounting for Contingent Consideration Issued in a PurchaseBusiness Combination," for recording as part of the cost of the business acquired in apurchase business combination (see discussion of Issue 97-8 in paragraph 58 of theSTATUS section). This Issue does not address the accounting for either the derivativecomponent or the financial instrument when the derivative component is embedded inand not detachable from the financial instrument. This Issue also does not address theaccounting for contracts that are issued (a) to compensate employees or (b) to acquiregoods or services from nonemployees when performance has not yet occurred. However,this Issue applies to contracts issued to acquire goods or services from nonemployeeswhen performance has occurred. This Issue does not address the accounting for contractsthat are indexed to, and potentially settled in, the stock of a consolidated subsidiary (seediscussion of Issue No. 00-6, "Accounting for Freestanding Derivative FinancialInstruments Indexed to, and Potentially Settled in, the Stock of a ConsolidatedSubsidiary," and Issue No. 00-4, "Majority Owner’s Accounting for a Transaction in theShares of a Consolidated Subsidiary and a Derivative Indexed to the Minority Interest inThat Subsidiary," in paragraphs 62 and 63 of the STATUS section).4. The Task Force observed that, pursuant to paragraphs 11(a) and 12(c) of Statement133, if an embedded derivative is indexed to the reporting entity's own stock and wouldbe classified in stockholders' equity if it was a freestanding derivative, that embeddedderivative is not considered a derivative for purposes of Statement 133. The Task Force
Copyright © 2006, Financial Accounting Standards Board Not for redistributionPage 3
 

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