7.1 Overview
ASC 470-20
05-7 Entities may issue
convertible debt securities and convertible preferred stock
with a beneficial conversion feature. Those instruments may
be convertible into common stock at the lower of a
conversion rate fixed at the commitment date or a fixed
discount to the market price of the common stock at the date
of conversion.
A BCF is an equity conversion feature embedded in a debt or equity instrument that is beneficial to the holder (investor) at the inception of the transaction. To recognize a BCF under ASC 470-20, an entity allocates the portion of the instrument’s carrying amount that equals the BCF’s intrinsic value to APIC upon the initial recognition of the instrument or, in the case of a contingent BCF, at the time it is triggered (see Section 7.5).