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By Stock Purchase Warrants


An enterprise issues debt instruments with both guaranteed and contingent payments. The contingent payments may be linked to the price of a specific commodity (for example, oil) or a specific index (for example, the S&P 500). In some instances, the investor's right to receive the contingent payment is separable from the debt instrument. An example is the issuance of a bond having periodic interest of 5 percent payable in cash, with the final payment being the greater of the amount of initial proceeds or an amount based on the then existing S&P 500 index. Another example is that, instead of the S&P 500 index used as a reference point, the fair value of real estate owned by the issuer of the bond is used (the so-called participating mortgage). [Note: See STATUS section.] The issues are (1) whether the proceeds should be allocated between the debt liability and the investor's right to receive a contingent payment and (2) the issuer's subsequent accounting for recognition of increases in the underlying commodity or index values. Copyright © 2006, Financial Accounting Standards Board Not for redistributio

Year: 1986
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