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Section 5400: Separation of Liabilities and Equity
[U.S. GAAP Codification Topic]
480 Distinguishing liabilities from equity
480-10 Overall
[U.S. GAAP before the Codification]
SFAS No. 150, May 2003, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity
FASB Staff Position FAS 150-3, November 2003, Effective date, disclosures, and transition for mandatorily redeemable financial instruments of certain nonpublic entities
1. Rules of SFAS No. 150
(1) Mandatorily redeemable financial instruments
--> classified as a liability
--> ASC 480-10-25-4
(2) Obligations to repurchase the issuer's equity shares by transferring assets
--> classified as a liability
--> ASC 480-10-25-8
(3) Examples:
(a) or (b) that are physically settled or net cash settled
(a) forward purchase contracts on the issuer's equity shares
(b) written put options on the issuer's equity shares
2. Variable Number of Shares
(1) Certain obligations to issue a variable number of shares are
--> classified as a liability
--> ASC 480-10-25-14
(2) Example:
An obligation that the issuer must or may settle
--> by issuing a "variable number" of its equity shares
3. Open effective date:
--> FASB Staff Position FAS 150-3, November 2003
(1) Grouping of mandatorily redeemable financial instruments
Group 1: mandatorily "redeemable on fixed dates",
for fixed or determinable amounts
Group 2: mandatorily redeemable financial instruments other than Group 1
(2) Certain nonpublic entities
--> Nonpublic entities that are not SEC registrants
(3) Rules of SFAS No. 150 are
--> deferred indefinitely, pending further FASB action
--> for "Group 2" mandatorily redeemable financial instruments
--> issued by nonpublic entities that are not SEC registrants
--> ASC 480-10-65-1
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