Financial Instruments, ASC 825

Fair Value Option

SFAS No. 159, February 2007
” The Fair Value Option for Financial Assets and Financial Liabilities”

Fair Value Option(FVO)
–> Option to measure eligible items at fair value

Eligible items: asc 825-10-15-4
(a) Financial assets and financial liabilities
–> except the items not eligible listed in asc 825-10-15-4
(b) Other eligible items listed in asc 825-10-15-4

Items not eligible: asc 825-10-15-5
(a) Investment in a subsidiary to be consolidated
(b) Investment in a Variable Interest Entities (VIE) to be consolidated
(c) Other items listed in asc 825-10-15-5

Election of FVO

FVO is applied “instrument by instrument.”

FVO is elected when the eligible item is “first recognized.”

Once FVO is elected
–> the decision is “irrevocable.”

Items Fair Value Option was elected for

Measured at “fair value”

Unrealized gains and losses are recognized in “earnings.”

FVO may be elected for the following:

1. Investment in HTM securities
2. Investment in AFS securities
3. Investment in equity securities for “equity method”
–> 20% or more, but no more than 50% of ownership
4. Financial liabilities

HTM: Held-to-Maturity
AFS: Available for Sale

For HTM and AFS, refer to asc 320