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Chapter 2 — Scope

2.3 Embedded Derivatives

2.3 Embedded Derivatives

Footnotes

2
In some cases, an entity will need to determine whether the embedded conversion feature would require bifurcation before the entity can apply the fair value option. This is because ASC 825-10-15-5(f) precludes application of the fair value option to any financial instrument that is, in whole or in part, classified by the issuer as a component of shareholders’ equity (including temporary equity) (e.g., a convertible debt instrument within the scope of the Cash Conversion subsections of ASC 470-20 or a convertible debt instrument that contains a noncontingent BCF). See Sections 2.5 and 3.2.