5.4 Subsequent Accounting

Since ASC 470-20 does not address the subsequent measurement of convertible debt to which the guidance on substantial premiums in ASC 470-20-25-13 applies, an issuer should refer to other GAAP. Such convertible debt contains a separated equity component (the premium), and thus the issuer cannot elect the fair value option in ASC 825-10 (see Section 2.5). Therefore, except for any bifurcated embedded derivatives, the liability-classified portion of the convertible debt instrument would be subsequently measured at amortized cost, which the issuer determines by using the interest method described in ASC 835-30. The issuer would not subsequently remeasure the amount initially recognized for the premium in equity.