Equity-security measurement alternative

The equity-security measurement alternative is an election. It applies to a qualifying equity security without a readily determinable fair value. ASC 321-10-35-2 describes the election and its adjustments. It is not a permanent cost method for every private-company investment.

Update cost for new evidence

The carrying amount begins with cost. It is then adjusted for impairment and for observable price changes from orderly transactions involving an identical or similar investment of the same issuer. Similarity requires analysis of rights and preferences; the words "same issuer" do not make two securities interchangeable.

Suppose private shares cost $180,000. A supported same-issuer transaction gives a $25,000 upward adjustment, and a separate impairment review gives a $10,000 write-down. The ending carrying amount is $195,000. Both changes affect earnings in this bounded example.

Reassess each reporting period

ASC 321-10-35-3 requires a qualitative impairment assessment each reporting period for a security measured under the alternative. Keep the election, readily- determinable-fair-value conclusion, transaction documents, comparison of rights, valuation support, and impairment review. Arithmetic can apply approved adjustments. It cannot prove that the election is available, that a transaction is orderly, or that another security is similar.