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Chapter 12 — Debt Conversions

12.2 Scope

12.2 Scope

ASC 470-20 discusses the accounting for a conversion of debt into the debtor’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). However, debt conversions and exchanges of debt into the debtor’s equity shares must be accounted for as debt extinguishments (see Section 9.3) in the following scenarios:
  • 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 (see Section 12.3.3).
  • A conversion that occurs in accordance with changed conversion privileges that does not meet the criteria for induced conversion accounting (see Section 12.3.4).
  • A conversion of debt into a variable number of shares in accordance with a share-settled redemption or indexation feature (e.g., the number of shares delivered is determined to have a fair value equal to the redemption amount; see Section 8.4.7.2.5).
  • The repayment of 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).