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Chapter 4 — Traditional Convertible Debt

4.3 Initial Accounting

4.3 Initial Accounting

Upon the initial recognition of traditional convertible debt, the issuer presents the entire amount attributable to the debt (see Section 3.5) as a liability; no amount is allocated to equity. If the issuer elects to account for the convertible debt at fair value on a recurring basis under the fair value option in ASC 825-10, any issuance costs are expensed at inception. If the fair value option is not elected, the issuer reduces the initial carrying amount of the debt by any direct and incremental issuance costs paid to third parties that are associated with the convertible debt issuance (see Section 3.5.3). The issuer should also determine whether the instrument contains any embedded features, other than the conversion feature, that must be bifurcated as derivatives under ASC 815-15-25-1 (e.g., a put option, a call option, or an interest rate adjustment feature).