| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a)
Basis of Presentation and Principles of Consolidation The
consolidated financial statements as of June 30, 2023 and for the six-month periods ended June 30, 2023 and 2022 are unaudited. The accompanying
unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”) for interim financial reporting. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) have been made that are necessary to present fairly the financial position, the results
of its operations and cash flows. Operating results as presented are not necessarily indicative of the results to be expected for a full
year. These consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements
and notes thereto included in the Company’s Form 20-F for the year ended December 31, 2022 filed on April 25, 2023 with the Securities
and Exchange Commission. The
consolidated financial statements include the accounts of the Company, and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. (b)
Use of Estimates The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenue and expenses during the reporting period. The Company’s significant estimates include its accounts
receivable, assessment of credit losses, fair value of stock options and warrants, valuation allowance of deferred tax assets, useful
lives of property and equipment, the recoverability of long-lived assets, revenue recognition, valuation of prepayments, goodwill, and
other intangible assets, inventories, cryptocurrencies, purchase price allocation of business combination, right-of-use assets, and lease
liabilities. Management makes these estimates using the best information available at the time the estimates are made; however actual
results could differ from those estimates. TAOPING
INC. NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (c)
Economic, Pandemic, Political, and Currency Exchange Risks All
the Company’s revenue-generating operations are conducted in Hong Kong and mainland China. Accordingly, the Company’s business,
financial condition and results of operations may be influenced by the political, economic, public health, and legal environments in
the PRC, and by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations
and significant risks that are not typically pertaining to the companies in North America and Western Europe. These include risks associated
with, among others, the political, economic, public health concerns with persistent outbreaks of COVID-19 infections in various regional
localities, and legal environments, geopolitical influences, and foreign currency exchange, notably in recent events, where the government’s
sudden interventions or modifications of the laws and regulations currently in effective could negatively impact the Company’s
operations and financial results. The
functional currency of the Company is primarily Chinese Renminbi Yuan (“RMB”), which is not freely convertible into foreign
currencies. The Company cannot guarantee that the current exchange rate will remain steady. Therefore, there is a possibility that the
Company could post the same amount of profit for two comparable periods and yet, because of fluctuating exchange rates, record higher
or lower profit depending on exchange rate of RMB. RMB converted to U.S. dollars on the relevant dates. The exchange rate could fluctuate
depending on changes in the political and economic environment without notice. (d)
Cash and Cash Equivalents The
Company considers all highly liquid investments purchased and cash deposits with financial institutions with original maturities of three
months or less to be cash equivalents. The Company had no The
Company maintains its cash accounts at credit worthy financial institutions and closely monitors the movements of its cash positions.
As of June 30, 2023, and December 31, 2022, approximately $ 0.5 1.0 (e)
Accounts Receivable, Accounts Receivable – related parties, and Concentration of Risk Accounts
receivable are recognized and carried at carrying amount less an allowance for credit loss, if any. The Company maintains an allowance
for credit losses resulting from the inability of its customers to make required payments based on contractual terms. The Company reviews
the collectability of its receivables on a regular and ongoing basis according to historical trend, and estimates its provision for expected
credit losses on receivables aging analysis. The
Company estimates allowance for credit losses for the anticipation of future economic condition and credit risk indicators of customers,
including the potential impact of the COVID-19 pandemic on its customers’ businesses. After all attempts to collect a receivable
have failed, the receivable is written off against the allowance. In the event the Company recovers amounts previously reserved for,
the Company will reduce the specific allowance for credit losses. The balance of allowance for credit losses for the six-month ended
June 30, 2023 has decreased approximately $ 0.9 TAOPING
INC. NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Accounts
receivable as of June 30, 2023 and December 31, 2022 are as follows: SCHEDULE
OF ACCOUNTS RECEIVABLE
June
30, 2023 December
31, 2022
(Unaudited)
Accounts Receivable $ 17,051,559 $ 20,159,165
Allowance for credit
losses (10,791,126 ) (10,957,920 )
Accounts Receivable,
net $ 6,260,433 $ 9,201,245
Accounts Receivable - related parties $ 13,908,789 $ 14,617,746
Accounts Receivable $ 13,908,789 $ 14,617,746
Allowance for credit
losses - related parties (13,857,340 ) (14,526,375 )
Allowance for credit
losses (13,857,340 ) (14,526,375 )
Accounts Receivable
- related parties, net $ 51,449 $ 91,371
Accounts Receivable, net $ 51,449 $ 91,371 The
normal credit term is ranging from 1 month to 3 months after the customers’ acceptance of high-end data storage servers or software,
and completion of advertising and other services, and ranging from 1 month to 6 months after the customers’ acceptance of ads display
terminals. However, because of various factors of business cycle, the actual collection of outstanding accounts receivable may be beyond
the normal credit terms. The
allowance for credit losses at June 30, 2023 and December 31, 2022, totaled approximately $ 24.6 25.5 SCHEDULE
OF ALLOWANCE FOR CREDIT LOSSES
Balance at January 1, 2022 $ 27,262,848
Decrease for balance due to transfer of a company (771,189 )
Increase in allowance for credit losses 674,664
Foreign exchange difference (1,682,028 )
Balance at December 31, 2022 $ 25,484,295
Increase in allowance for credit losses 973,909
Foreign exchange difference (1,809,738 )
Balance at June 30, 2023 (Unaudited) $ 24,648,466 TAOPING
INC. NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (f)
Fair Value Accounting Financial
Accounting Standards Board (FASB) Accounting Standards Codifications (ASC) 820-10 “Fair Value Measurements and Disclosures”,
establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). As required by FASB ASC 820-10, assets are classified in their entirety
based on the lowest level of input that is significant to the fair value measurement. The three levels of the fair value hierarchy under
FASB ASC 820-10 are described below:
Level
1 Unadjusted
quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level
2 Quoted
prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term
of the asset or liability; and
Level
3 Prices
or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by
little or no market activity). (g)
Inventories, net Inventories
are valued at the lower of cost (weighted average basis) and net realizable value. Net realizable value is the expected selling price
in the ordinary course of business minus any costs of completion, disposal, and transportation to make the sale. The
Company performs an analysis of slow-moving or obsolete inventory periodically and any necessary valuation reserves, which could potentially
be significant, are included in the period in which the evaluations are completed. Any inventory impairment results in a new cost basis
for accounting purposes. TAOPING
INC. NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (h)
Property, equipment and software, net Property,
equipment and software are stated at cost less accumulated amortization and depreciation. Amortization and depreciation are provided
over the assets’ estimated useful lives, using the straight-line method. Estimated useful lives of property, equipment and software
are as follows: SCHEDULE
OF ESTIMATED USEFUL LIVES
Office buildings 20 50 years
Lease improvement Shorter of lease term or assets lives
Electronics equipment, furniture and fixtures 3 5 years
Motor vehicles 5 years
Purchased software 5 years
Media display equipment 5 years
Cryptocurrency mining machine 3 years Expenditures
for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures
for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated
depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss are included in the Company’s
results of operations. (i)
Goodwill ASC
350-30-50, “Goodwill and Other Intangible Assets”, requires the testing of goodwill and indefinite-lived intangible assets
for impairment at least annually. The Company tests goodwill for impairment in the fourth quarter each year or earlier if an indicator
of impairment exists. Under
applicable accounting guidance, the goodwill impairment analysis is a two-step test. The first step of the goodwill impairment test involves
comparing the fair value of each reporting unit with its carrying amount including goodwill. If the fair value of a reporting unit exceeds
its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit
exceeds its fair value, the second step must be performed to measure potential impairment. The
second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated possible
impairment. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the
goodwill assigned to a reporting unit exceeds the implied fair value of goodwill, an impairment charges recorded for the excess. (j)
Cryptocurrencies Cryptocurrencies
held, including Bitcoin and Ethereum, are accounted for as intangible assets with indefinite useful lives. An intangible asset with an
indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances
occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount
exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured.
If the carrying amount of the cryptocurrency exceeds its fair value, the Company recognizes an impairment loss in an amount equal to
that excess. Subsequent reversal of impairment losses is not permitted. There
are no cash flows from cryptocurrencies included in net cash used in operating activities since the revenue recognized from mining is
a noncash activity. The sales of cryptocurrencies are included within investing activities in the consolidated statements of cash flows
and any realized gains or losses from such sales are included in other income (expense) in the consolidated statements of operations.
The Company accounts for its gains or losses in accordance with the first in first out (FIFO) method of accounting. Upon
disposal of cryptocurrencies, the Company will evaluate whether the control of the cryptocurrencies is transferred in accordance with
ASC 610-20. The control over the cryptocurrencies disposed will transfer at the same time of the disposal, hence the cryptocurrencies
transferred will be derecognized at the same time of the disposal. The gain or loss on disposal is calculated as the difference between
the consideration allocated to each distinct cryptocurrency and its carrying amount. TAOPING
INC. NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (k)
Business combination In
accordance with ASC 805, the Company applies acquisition method to account for business combination. The acquisition method requires
that the fair value of the underlying exchange transaction is used to establish a new accounting basis of the acquired entity upon the
acquirer taking control over the acquiree. Furthermore, because of obtaining control the acquirer is responsible and accountable for
all of the acquiree’s assets, liabilities and operations, the acquirer recognizes and measures the assets acquired and liabilities
assumed at their full fair values as of the date control is obtained, which may result in goodwill, when purchase consideration exceeds
the net of fair value of the assets acquired and liabilities assumed, or a bargain purchase gain, when the net of fair value of the assets
acquired and liabilities assumed exceeds the purchase consideration, regardless of the percentage ownership in the acquiree or how the
acquisition was achieved. (l)
Disposal of subsidiary The
Company deconsolidates a subsidiary upon the loss of control, the related subsidiary’s assets (including goodwill), liabilities,
non-controlling interest and other components of equity are de-recognized. This may mean that amounts previously recognized in other
comprehensive income are reclassified to profit or loss. Any
consideration received is recognized at fair value. Any resultant gain or loss is recognized in the Statement of Operations. (m)
Long-term investment The
Company’s long-term investment consists of investments accounted for under the equity method and equity investments without readily
determinable fair value. Pursuant to ASC 321, equity investments, except for those accounted for under the equity method, those that
result in consolidation of the investee and certain other investments, are measured at fair value, and any changes in fair value are
recognized in earnings. For equity securities without readily determinable fair value and do not qualify for the existing practical expedient
in ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) to estimate fair value using the net asset value per
share (or its equivalent) of the investment, the Company elected to measure those investments at cost, less any impairment, plus or minus
changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any. For
equity investments that the Company elects to measure at cost, less any impairment, plus or minus changes resulting from observable price
changes, the Company makes a qualitative assessment considering impairment indicators to evaluate whether investments are impaired at
each reporting date. Impairment indicators considered include, but are not limited to, a significant deterioration in the earnings performance
or business prospects of the investee, including factors that raise significant concerns about the investee’s ability to continue
as a going concern, a significant adverse change in the regulatory, economic, or technologic environment of the investee and a significant
adverse change in the general market condition of either the geographical area or the industry in which the investee operates. If a qualitative
assessment indicates that the investment is impaired, the entity has to estimate the investment’s fair value in accordance with
the principles of ASC 820. For equity investments without readily determinable fair value, the Company uses Level 3 inputs of fair value
accounting in accordance with ASC 820-10 and recognizes impairment loss other than temporary in the statement of operations equal to
the difference between its initial investment and its proportional share of the net book value of the investee’s net assets which
approximates its fair value. For
impairment on equity investments without readily determinable fair value, the Company uses Level 3 inputs of fair value accounting in
accordance with ASC 820-10 and recognizes impairment loss in the statement of operations equal to the difference between its initial
investment and its proportional share of the net book value of investee’s net assets which approximates its fair value if those
are determined to be other than temporary. TAOPING
INC. NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (n)
Operating leases - Right-of-use assets and lease liabilities The
Company accounts for lease under ASC 842 “Leases”, and also elects practical expedient not to separate non-lease component
from lease components in accordance with ASC 842-10-15-37 and instead to account for each separate lease component and the non-lease
components associated with that lease component as a single lease component. The Company also elects the practical expedient not to recognize
lease assets and lease liabilities for leases with a term of 12 months or less. The
Company recognized a lease liability and corresponding right-to-use asset based on the present value of minimum lease payments discounted
at the Company’s incremental borrowing rate. The Company records amortization and interest expense on a straight-line basis based
on lease terms and reduces lease liabilities upon making lease payments. (o)
Revenue Recognition In
accordance with the ASC 606, the Company recognizes revenues net of applicable taxes, when goods or services are transferred to customers
in an amount that reflects the consideration to which the Company expects to receive in exchange for those goods or services. The
Company generates its revenues primarily from five sources: (1) product sales, (2) software sales, (3) advertising, (4) crypto-currency
mining, and (5) other sales. Revenue is recognized when obligations under the terms of a contract with our customers are satisfied, generally,
upon delivery of the goods and services and receipts of cryptocurrencies from cryptocurrency mining pools. Although
our performance obligation in our contracts with the mining pool operator is the provision of computing power, we are not entitled to
any compensation for computing power provided when the pool operator is unsuccessful in placing a block to the blockchain. Revenue
- Products Product
revenues are generated primarily from the sale of Cloud-Application-Terminal based digital ads display terminals with integrated software
essential to the functionality of the hardware to our customers (inclusive of related parties) and high-end data storage servers. Although
manufacturing of the products has been outsourced to the Company’s Original Equipment Manufacturer (OEM) suppliers, the Company
has acted as the principal of the contract. The Company recognized the product sales at the point of delivery. The Company may from time
to time provide future unspecified software upgrades to the hardware products’ essential software, which is expected to be infrequent
and, free of charge. Non-software service is mainly the one-time training session provided to the customer to familiarize them with the
software operation upon the customer’s initial introduction to the software platform. The costs of providing infrequent software
upgrade and training are de minimis. As a result, the Company does not allocate transaction price to software upgrade and customer training.
Product sales are classified as “Revenue-Products” on the Company’s consolidated statements of operations. TAOPING
INC. NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Revenue
- Software The
Company designs and develops software products. Software development projects usually include developing software, integrating various
isolated software systems into one, and testing the system. The design and build services, together with the integration of the various
elements, are generally determined to be essential to the functionality of the delivered software. The contracted price is usually paid
at the delivery of the software. The Company usually provides non-software services including after-sale support, technical training.
The technical training only occurs at the introduction of the software. The software is highly specialized and stable, after-sale support
and subsequent upgrade or enhancement are infrequent. The Company has estimated the costs associated with the non-software performance
obligations and concludes that these obligations are de minimis to the overall contract. Therefore, the Company does not further allocate
transaction price. The
Company usually completes the software support service in one-off and recognizes the revenue at the point of delivery of service because
the Company does not have an enforceable right to payment for performance completed to date. Revenues from software development contracts
are classified as “Revenue-Software” on the Company’s consolidated statements of operations. Revenue
- Advertising The
Company generates revenues primarily from providing advertising slots to customers to promote their businesses by broadcasting advertisements
on identifiable digital ads display terminals and vehicular ads display terminals in different geographic regions and locations through
a cloud-based new media sharing platform. The Company also contracts individuals to promote special events or for various occasions.
The Company is only obligated to broadcast the advertisements to the contracted digital ads display terminals, and therefore allocates
100 The
Company recognizes the revenues, net of applicable taxes, from advertisement broadcasting contracts with customers over the contracted
advertising duration. TAOPING
INC. NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Revenue
- Cryptocurrency mining The
Company has entered into digital asset mining pools by executing contracts with the mining pool operators to provide computing power
to the mining pool. The contracts are terminable under certain circumstances. Both the Company and the mining pool operator have the
right to terminate the contract at any time, with or without clause, and without compensation. In exchange for providing computing power,
the Company is entitled to a fractional share of the fixed cryptocurrency awards the mining pool operator receives (less digital asset
transaction fees to the mining pool operator, if any.) for successfully adding a block to the blockchain. The Company’s fractional
share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power
contributed by all mining pool participants in solving the current algorithm. The contract first exists upon the successful placement
of a block on the blockchain by the pool operator because that is the point when the parties have performed their contract obligation
and neither party can unilaterally terminate the contract without compensating the other party. Providing
computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision
of providing such computing power is the only performance obligation in the Company’s contract with mining pool operator. The
transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value using the
quoted price from principal market of the related cryptocurrency on the date received, which is not materially different than the fair
value at the contract inception or at the time the Company has earned the award from the pools. The consideration is variable. Because
it is not probable that a significant reversal of cumulative revenue will not occur (ASC 606-10-32-11), the consideration is constrained
until the mining pool operator successfully places a block (by being the first to solve an algorithm), and the Company receives confirmation
of the consideration it will receive, at which time revenue is recognized. There is no financing component, nor allocation of transaction
price in these transactions. Revenue
- Other The
Company also reports other revenue which comprises revenue generates from System upgrade and technical support services, platform service
fee, and rental income. System
upgrade and technical support revenue is recognized when performance obligations are satisfied upon completion of the services. Platform
service fee is charged based on number of the display terminals used by the customers or a percentage of advertising revenue generated
by the display terminals. Platform service revenue is recognized on a monthly basis over the contract period. The
Company follows ASC 842 – Leases that requires lessor to identify the underlying assets and allocate rental income among considerations
in lease and non-lease components. The Company owns a unit of office space renting out to a third party with lease terms of two years
starting from May 1, 2022. The lease agreements have fixed monthly rental payments, and no non-lease component or option for lessees
to purchase the underlying assets. The Company collects monthly rental payments from the lessees, and has generated approximately $ 128,360 150,000 SCHEDULE
OF ANNUAL MINIMUM RENTAL INCOME RECEIVED
Annual minimum rental income to be received
in the next 5 years:
2023 128,360
2024 85,573
Total 213,933 Contract
balances The
Company records advances from customers when cash payments are received or due in advance of our performance. For the six months ended
June 30, 2023 and 2022, the Company recognized revenue of $ 463,455 9,000 Practical
expedients and exemptions The
Company generally expenses sales commissions if any incurred because the amortization period would have been one year or less. In many
cases, the Company is approached by customers for customizing software products for their specific needs without incurring significant
selling expenses. The
Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year
or less. (p)
Cost of Sales - advertising and cost of cryptocurrencies The
cost of sales for advertising revenue mainly comprises of direct costs of generating advertising revenue including lease expense for
the wall space, to where the ads display terminal to be installed, installation costs of ads display terminals, depreciation of display
termination, labor, and other related expenses. The
cost of sales for cryptocurrencies revenue consists primarily of direct costs of earning Bitcoin and Ethereum related to mining operations,
including mining platform fees, mining pool fees, mining facility rental fees, electric power costs, other utilities, depreciation of
mining machines, labor, insurance, and among other ancillary costs. TAOPING
INC. NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (q)
Discontinued Operations The
Company follows “ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting
Discontinued Operations and Disclosures of Disposals of Components of an Entity” for reporting discontinued operations. Under the
revised standard, a discontinued operation must represent a strategic shift that has or will have a major effect on an entity’s
operations and financial results. Examples could include a disposal of a major line of business, a major geographical area, a major equity
method investment, or other major parts of an entity. The revised standard also allows an entity to have certain continuing cash flows
or involvement with the component after the disposal. Additionally, the standard requires expanded disclosures about discontinued operations
that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued
operations. (r)
Segment reporting Segment
information is consistent with how the Chief Operating Decision Maker, i.e., the Directors of the Company, review the businesses, make
investing and resource allocation decisions and assess operating performance. Transfers and sales between reportable segments, if any,
are recorded at cost. The
Company reports financial and operating information in the following three
(1) Cloud-based
Technology (CBT) segment — It includes the Company’s cloud-based products, high-end data storage servers and related
services sold to private sectors including new media, healthcare, education and residential community management, and among other
industries and applications. In this segment, the Company generates revenues from the sales of hardware and software total solutions
with proprietary software and content as well as from designing and developing software products specifically customized for private
sector customers’ needs for a fixed price. The Company includes the revenue and cost of revenue of high-end data storage servers
in the CBT segment. Advertising services is included in the CBT segment, after the Company consummated the acquisition of TNM. Advertisements
are delivered to the ads display terminals and vehicular ads display terminals through the Company’s cloud-based new media
sharing platform. Incorporation of advertising services complements the Company’s out-of-home advertising business strategy.
(2) Blockchain
Technology (BT) segment — The BT segment is the Company’s newly formed business sector in 2021. Cryptocurrency mining
is the first initiative implemented in the BT segment. However, due to the decreased output and the highly volatile cryptocurrency
market, the Company had ceased the operation of the BT segment by December 2022.
(3) Traditional
Information Technology (TIT) segment — The TIT segment includes the Company’s project-based technology products and services
sold to the public sector. The solutions the Company has sold primarily include Geographic Information Systems (GIS), Digital Public
Security Technology (DPST), and Digital Hospital Information Systems (DHIS). In this segment, the Company generates revenues from
sales of hardware and system integration services. As a result of the business transformation, the TIT segment is gradually being
phased out in 2021. (s)
Recent Accounting Pronouncements In
August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing
the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results
in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments
that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related
to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting
and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06
is effective for public business entities fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.
The adoption of ASU 2020-06 did not have material impact on the gr |
