As part of its accounting analysis under ASC 480-10, an issuer must carefully evaluate an instrument’s contractual terms (see Section 3.1). Any feature that is nonsubstantive or minimal is ignored (see Section 3.2). Further, the issuer must consider how to appropriately identify units of account (see Section 3.3).
In determining the appropriate accounting for a contract or transaction under ASC 480-10, an entity is well advised to devote adequate time to reading the underlying legal documents. Terms that are significant to the accounting analysis may be buried deep within the fine print of the contract. All of the contractual terms as well as the legal and regulatory framework and surrounding facts and circumstances need to be carefully evaluated in light of the applicable accounting requirements.
ASC Master Glossary
Unit of Account
The level at which an asset or a liability is aggregated or disaggregated in a Topic for recognition purposes.
Depending on the relationship between the issuer and the investor, amounts paid to the investor could represent a dividend or other distribution as opposed to an issuance cost. An entity should use judgment and consider the particular facts and circumstances when determining what these amounts represent.