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ASC 320 applies to assets that are securities as defined in ASC 320-10-20. This definition in ASC 320 is based on the Uniform Commercial Code at the time the guidance was developed more than 20 years ago, but may not be consistent with the legal definition of a security today. The form of the instrument needs to be evaluated to determine whether it meets the definition of a security and is therefore covered by ASC 320. In the case of a foreign security, the determination of whether the instrument is, in form, a security, and whether it is debt or equity, depends on the laws and regulations in the legal jurisdiction in which the instrument was issued.
A debt or equity investment (that has a readily determinable fair value) in an entity with substantial real estate (e.g., a REIT) is, in substance, an investment in real estate. However, ASC 360-20-15-10, Property, Plant and Equipment, states that such an investment should be accounted for in accordance with ASC 320, even if that investment is, in substance, an investment in real estate.
Equity investments outside the scope of ASC 320 should be accounted for in accordance with ASC 323, Equity Method and Joint Ventures (i.e., on the historical cost basis subject to a write-down for impairment), unless the fair value option is elected under ASC 825, Financial Instruments, ASC 944, Insurance or ASC 946, Investment Companies.
After determining that an instrument is a security, it is necessary to determine whether it is a debt or equity security as defined in ASC 320-10-20. ASC 320 applies to all investments in debt securities and to investments in equity securities that have readily determinable fair values.
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