12.2 Scope

ASC 470-20 addresses the issuer’s accounting for a conversion of debt into the issuer’s equity shares in accordance with the debt’s original conversion terms (see Section 12.3.2) or under an induced conversion (see Section 12.3.4). The guidance in ASC 470-20 does not apply to any of the following:

A conversion that occurs upon the issuer’s exercise of a call option if the instrument did not contain a substantive conversion feature as of its issuance date. This type of transaction must be accounted for as a debt extinguishment even if the instrument was converted in accordance with its original conversion privileges. See Sections 9.3.5 and 12.3.3 for further discussion.
A conversion that occurs in accordance with changed conversion privileges and does not meet the criteria for induced conversion accounting. This type of transaction must be accounted for as a debt extinguishment. See Sections 9.3.5 and 12.3.4 for further discussion.
A modification or exchange of debt, including convertible debt. This type of transaction must be evaluated under ASC 470-50. See Sections 9.3.5 and 10.2.12 for further discussion.
A conversion of debt, including convertible debt, into a variable number of shares in accordance with a share-settled redemption feature (e.g., it is determined that the number of shares delivered has a fair value equal to the redemption amount). This type of transaction must be accounted for as a debt extinguishment. See Sections 8.4.7.2.5 and 9.3.5 for further discussion.
The repayment of debt, including convertible debt, by the delivery of the debtor’s equity shares if the debtor is using its own shares as a means of currency to settle the debt obligation’s value (e.g., the number of shares delivered is determined to have a value equal to the monetary amount of the debt obligation). This type of transaction must be accounted for as a debt extinguishment. See Sections 9.2.3.2 and 9.3.5 for further discussion.
The repayment of debt, including convertible debt, by the delivery of the debtor’s equity shares if the settlement is a TDR. This type of transaction must be accounted for as a TDR. See Chapter 11 for further discussion.
A conversion of debt into equity shares of a third party. This type of transaction must be accounted for as a debt extinguishment.

In certain circumstances, the tendering of debt upon the exercise of a detachable warrant is accounted for as a debt conversion and not as a debt extinguishment (see Section 9.3.6). Further, it may be appropriate to apply extinguishment accounting to conversions of convertible debt for which the conversion feature was separated as a derivative instrument under ASC 815-15 (see Section 12.4).

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.