contract, (c) a purchased put option, and (d) a purchased call option.
Those contracts may be settled by physical settlement, net share
settlement, or net cash settlement.
\13/ Issue 94-7 was combined with and codified in EITF Issue No. 96-13,
"Accounting for Sales of Options or Warrants on Issuer's Stock with
Various Forms of Settlement."
117. Issue 94-7 indicates that contracts that give the company a choice of
net cash settlement or settlement in its own shares are equity instruments
and should be measured initially at fair value. If such contracts are
ultimately settled in cash, the amount of cash paid or received should be
an adjustment to contributed capital. The Board considered whether the
amount of cash paid or received (which represents a loss or gain on the
contract) should be included as an item of other comprehensive income.
118. In Issue 94-7, the Emerging Issues Task Force reached a consensus that
contracts that give the company a choice of net cash settlement or
settlement in its own shares are equity instruments. Comprehensive income
excludes all changes in equity resulting from investments by owners.
Therefore, the Board decided that until it addresses that issue in a
broader-scope project, a net cash settlement resulting from a change in
value of such a contract should be treated as a change in value of an
equity instrument and should not be considered as an item of comprehensive
Other Paid-in Capital Transactions Not Addressed
119. The Board recognizes that there may be other transactions that are
reported as direct adjustments to paid-in capital or other equity accounts
that have characteristics similar to items that the Board has identified as
other comprehensive income. Instead of addressing those transactions on a
piecemeal basis, the Board decided that transactions required by generally
accepted accounting principles to be recognized in paid-in capital or other
similar nonincome equity accounts are not to be displayed as other
comprehensive income. However, the Board may collectively address those
types of transactions in a broader-scope project on comprehensive income.