786 Trading and Consulting LLC (d/b/a Primebooks Consulting LLC)
US GAAP · Universal Warrant Evaluation
Warrants Accounting Tool
Scope first, then the right classification model. Upload a warrant and the tool reads it, determines whether it’s within ASC 718, and runs the correct waterfall — ASC 718 classification for awards to employees, suppliers, or customers, or ASC 480 → 815-40 for financing and other freestanding equity contracts — through measurement, allocation, and valuation.
Scope ASC 718-10-15 · 606-10-32-25A
Classify ASC 718-10-25 · 480 · 815-40
Measure 470-20 · 835-30 · 820 · 606
Analysis fileSaves everything you’ve entered to a file you can reopen later. Best in a full browser tab.
Two ways to adjust the analysis. (1) Edit the source text and add facts the agreement doesn’t state (underlying share class; whether shares are puttable or only redeemable on a change of control; services vs. financing; cash-settlement practice), then re-run — the editable text and Re-run analysis button are in “Read the agreement” below. (2) Override the tool’s own conclusions — scope, freestanding vs. embedded, any classification gate, the measurement basis — in the “Review & edit the analysis” panel near the download; changes recompute automatically and flow into the downloaded analysis.
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Read the agreement
Upload the executed warrant (and, for financing, the note/credit agreement). The tool extracts terms, determines scope, pre-answers the gates with citations, and lists anything missing.
Drop a PDF or Word file here
or click to choose · the file stays in your browser
— OR PASTE / EDIT TEXT —
Editing & re-running: the text box above now holds the text the analysis read. Edit it, or add any facts the agreement doesn’t state — the underlying share class, whether the shares are puttable or only redeemable on a change of control, whether the warrant is for services vs. financing, cash-settlement practice, and so on — then click Re-run analysis. Any related agreements you attached are kept.
The warrant is loaded. Add related agreements or supporting information first?
Optional context — the loan/credit, customer, or services agreement the warrant was issued under — helps confirm counterparty/scope and settlement terms. You can also skip and run the analysis now.
Related agreements & supporting information — added as context to sharpen the classification
Drag & drop file(s) here — or use “+ Attach file” above. The selected type applies to what you add.
Partner note. Automatic reading is a first-pass drafting aid, not the conclusion. Every extracted answer is shown with its source and remains editable. Related agreements (the loan, customer, or services contract the warrant was issued under) are read as supporting context — helpful for confirming counterparty/scope and settlement terms. If reading is unavailable in your environment, the manual waterfall works on its own.
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Missing information
Needed for a complete analysis but not in the agreement. Provide what you can — or skip and the tool completes on what's available.
00
Instrument terms
Drives the memo, the journal entries, the allocation, and the valuation.
00b
Key classification terms
The provisions that actually drive scope, classification, and measurement — extracted from the agreement (and any related documents) and editable.
Read an agreement above to populate the classification-relevant terms, or fill them in as you review. These summarize the drivers behind the waterfall — settlement mechanics, redemption/put rights, the underlying share class, anti-dilution, change-of-control, and any variable features.
01
Freestanding vs. embedded
ASC 480-10-20 — freestanding if entered into separately, or issued in conjunction with another instrument but legally detachable and separately exercisable.
A warrant issued alongside debt or preferred is still freestanding when it is legally detachable and separately exercisable; it is then analyzed independently of the host. If it is embedded, it follows the ASC 815-15 bifurcation model instead.
Is the warrant a freestanding financial instrument?
Standalone, or — if issued with a note/credit/preferred instrument — legally detachable (transferable) and separately exercisable without terminating the host.
Yes — freestandingNo — embedded feature
Embedded feature: analyze under ASC 815-15 for bifurcation of an embedded derivative. The remaining gates are indicative only.
This choice sets the classification model, not just the offset. A share-based payment within ASC 718 is classified under ASC 718’s own model — it is not run through the ASC 815-40 indexation and equity-classification conditions while in scope. A warrant to a lender/investor (financing) or another freestanding equity contract is outside ASC 718 and is classified under ASC 480 → 815-40.
Who is the counterparty, and why was the warrant issued?
This determines scope. Employees, suppliers of goods/services, and customers are inside ASC 718; lenders/investors and business-combination counterparties are outside it.
Employee (compensation)Nonemployee supplier — advisory / vendor / artistCustomer / revenue partnerLender / investor — financing or for cashBusiness combination / other
Issued together with a debt or preferred instrument?
If yes, proceeds are allocated between the host and the warrant (Step 8).
Yes — with debt / preferredNo — for cash alone
Vesting condition
Drives recognition and valuation. An “other” condition (not service/performance/market) forces liability classification under ASC 718.
Fully vested at grantService (cliff / graded)Performance conditionMarket condition
Is the warrant a payment for a distinct good or service the customer transfers to the issuer?
ASC 606-10-32-26. If not, the whole amount reduces the transaction price (revenue). If yes, it’s a purchase up to the fair value of that good/service, and any excess reduces revenue.
No — pure incentiveYes — distinct good/service received
Vesting / performance basis
Post ASU 2025-04, a “performance condition” for customer awards includes vesting on the customer’s (or its customers’) purchases; the variable-consideration constraint doesn’t apply.
Fully vested at grantVests on customer purchasesService / timeMarket condition
What does the warrant relate to?
Outside ASC 718 → classification runs ASC 480 → 815-40; this sets the offsetting entry.
Business combination (ASC 805)Equity offering / issuance costSettlement of a liability / other
03
ASC 718 classification
Track A · if in ASC 718
ASC 718-10-25-6 through -25-19 — the share-based payment classification model. Any “yes” forces liability classification.
While the award is within ASC 718, this is the classification model — the ASC 815-40 indexation and equity-classification conditions do not apply. Default to equity: a 718 award is a liability only if a specific provision establishes one of the triggers below. Each trigger states what counts and what does not, so a mis-flag is easy to catch — if the evidence cited for a “yes” is a share-count, vesting, or sizing mechanism, the answer is “no.”
(a) Would it be a liability under ASC 480?
“Yes” only if one of these is affirmatively present: (i) the award is mandatorily redeemable — an unconditional obligation to redeem for cash/assets at a fixed date or on an event certain to occur; (ii) an obligation to repurchase the issuer’s shares by transferring assets (a forward/written put the holder can compel); or (iii) an obligation to deliver a variable number of shares whose monetary value is fixed at inception, indexed to something other than the issuer’s share value, or moves inversely to it (share-settled debt, ASC 480-10-25-14). What does NOT count: a share count that varies with a performance target, a vesting ratio, or a target ownership percentage of fully-diluted capital — its value moves with the shares, so it is equity, not share-settled debt. (ASC 718-10-25-6 to -25-7.)
NoYes
Liability under ASC 718 via ASC 480 — confirm the cited evidence is a mandatory-redemption, share-repurchase, or fixed-monetary-value provision, not a share-count / vesting mechanism. Stop.
(b) Cash / other-asset settlement of the award?
“Yes” only if the entity can be required to pay cash/assets to settle the AWARD ITSELF: mandatory cash settlement; a holder put for cash on an event within the holder’s control; a grantor practice or intention of cash-settling; the grantor may choose settlement but cannot control share delivery; or partial cash settlement (ASC 718-10-25-11 to -25-15). What does NOT count: a cashless / net-share exercise (it delivers shares); and cash the holder later receives as a shareholder — dividends, or liquidation / change-of-control proceeds paid to all holders of that class — is not settlement of the award.
No — settles in sharesYes
Liability under ASC 718 — a cash/asset settlement feature of the award. Confirm the evidence is a cash-settlement right, not a net-share exercise or a shareholder-level distribution. Stop.
(c1) Are the underlying shares themselves liability-classified?
“Yes” only if the shares the award converts INTO are a liability:mandatorily redeemable (redeemable at a fixed date or on an event certain to occur), or puttable at the HOLDER’s option so the entity can be forced to transfer assets. What does NOT count — the common mis-flag: a share that is only contingently redeemable — redeemable solely on a Deemed Liquidation Event, change of control, IPO, or other event outside the issuer’s control that is not certain — is NOT a liability (ASC 480-10-25-7). It is equity (mezzanine for an SEC filer), and the award stays equity until that event is probable/certain, at which point you reassess. A liquidation preference paid on a deemed liquidation is not, by itself, a put or a mandatory redemption. Trap language that does not alone make the underlying a liability: “Deemed Liquidation Event,” “redeemable upon a Change of Control,” “liquidation preference.”
No — equity / contingently redeemableYes — mandatorily redeemable or holder-puttable
Liability under ASC 718 — the underlying shares are liability-classified. Confirm they are mandatorily redeemable or holder-puttable, NOT merely redeemable on a deemed liquidation / change of control. Stop.
Caution — the underlying was flagged liability-classified, but the Key Terms describe the shares as common / non-redeemable, or the only redemption is a Deemed Liquidation / change-of-control event outside the issuer’s control. That is a contingent redemption → equity until probable (ASC 480-10-25-7). Re-check this gate.
(c2) Repurchase / put / call that removes normal ownership risk?
Separate from (c1). “Yes” only if a repurchase, put, or call lets the holder avoid the normal risks and rewards of share ownership for a reasonable period (generally at least six months) after exercise — e.g., the holder can put the shares back (or the entity can call them) shortly after exercise, or a repurchase at other than fair value (ASC 718-10-25-9 to -25-11; the six-month concept). What does NOT count: a right of first refusal, ordinary transfer restrictions, or a repurchase at fair value only on termination.
No — bears ownership riskYes
Liability under ASC 718 — a repurchase/put/call strips the normal risks & rewards of ownership within six months. Confirm it is a near-term put/call or a non-fair-value repurchase, not an ROFR. Stop.
Repurchase / put-call test ASC 718-10-25-9 to -25-12
Two independent triggers make the award a liability: timing — a put/call exercisable before the grantee bears the risks and rewards of ownership for a reasonable period (six months) from issuance/vesting (or it is probable the grantor would prevent that exposure); or price — a repurchase at other than fair value (a fixed or formula price). A fair-value put exercisable only after six months stays equity — but then flag temporary-equity. A right of first refusal or ordinary transfer restriction is neither.
Answer the questions above to run the ASC 718 repurchase test.
(d) Any “other” condition — not service, performance, or market?
“Yes” only for a condition affecting fair value, vesting, or exercisability that is NOT a service, performance, or market condition — e.g., a strike or share count indexed to a commodity, an external index, or another entity’s securities (ASC 718-10-25-13; classic example: exercise price indexed to gold). What does NOT count: service conditions (time), performance conditions (revenue, units enrolled, referrals, milestones), and market conditions (stock-price / TSR targets) are all permitted in an equity award. A share count that scales with a performance/vesting ratio or a target ownership percentage is a performance/sizing feature, not an “other” condition.
No — only service/performance/marketYes
Liability under ASC 718 — a non-service/performance/market condition (e.g., a commodity/index-linked strike). Confirm it is a true external-index condition, not a performance/service/market condition. Stop.
(e) Ability to deliver shares — is share delivery in doubt?
Under ASC 718-10-25-15 the entity must have the ability to deliver the shares. Unlike the financing track, this is a probability test, not a maximum-shares test: considering expected vesting/forfeitures and net-share settlement, is it probable the entity will be unable to deliver enough authorized/unissued shares (or would need shareholder approval it does not control)? If not probable → equity. If probable → only the probable-shortfall portion is a liability. A requirement to deliver registered shares does not, by itself, mean the entity cannot deliver.
No — delivery not in doubtYes — probable shortfall
Liability under ASC 718-10-25-15 — it is probable the entity cannot deliver enough shares and authorizing more is not within its control. Only the probable-shortfall portion is a liability. Stop.
No ASC 718 liability trigger → equity-classified under ASC 718.
Ability-to-deliver-shares test ASC 718-10-25-15 (probability-based)
This is a probability assessment, not the financing track’s worst-case test — use expected shares (net of forfeitures and reflecting net-share settlement). These figures usually come from the cap table and charter, not the award — enter them below, or upload the cap table / charter above as a related agreement. Shareholder approval to authorize more shares is not within the issuer’s control.
Enter the available and expected share figures above (or upload the cap table / charter) to run the test.
Transition out of ASC 718. A vested warrant originally granted under ASC 718 continues to be classified under ASC 718 — it only becomes subject to ASC 480 / 815-40 if it is modified after the holder is no longer a grantee, employee, or customer (ASC 718-10-35-9 through -35-11). Reassess under the 815-40 track if that occurs.
03
ASC 480 liability
Track B · if outside ASC 718
ASC 480-10-25-4 · -25-8/-13 · -25-14 — any “yes” forces liability classification and stops the waterfall.
Applies to freestanding equity-linked instruments outside ASC 718. Note: the “obligation to repurchase” guidance (ASC 480-10-25-8 through -25-12; 480-10-55-33) reaches freestanding warrants over shares that are puttable or redeemable.
(a) Mandatorily redeemable, or a warrant over puttable / redeemable shares?
Unconditional obligation to redeem by transferring assets at a set date / certain event, or underlying shares are redeemable (ASC 480-10-25-4, -25-8/-13, -55-33).
NoYes
Liability under ASC 480 — mandatorily redeemable / warrant over redeemable shares. Stop.
(b) Obligation to repurchase the issuer’s own shares by transferring assets?
Written put / forward purchase requiring or that may require asset transfer (ASC 480-10-25-8).
No — call option onlyYes
Liability under ASC 480-10-25-8 — obligation to repurchase own shares. Stop.
(c) Settles in a variable number of shares by monetary value?
Monetary value based predominantly on (i) a fixed amount, (ii) something other than the issuer’s share fair value, or (iii) a value inversely related to it (ASC 480-10-25-14). A cashless / net-share count that moves with the share price does not trigger this. Run the predominance test below.
No — fixed shares / fixed strikeYes
Liability under ASC 480-10-25-14 — variable-share monetary settlement. Stop.
Variable-share predominance test ASC 480-10-25-14 / 55-45 to -52
A variable share count triggers ASC 480 only if the monetary value is based predominantly on a fixed amount, an external variable, or a value inversely related to your share price. A cashless / net-share count that moves with the price (higher price → more value) does not. Predominance is a facts-and-circumstances judgment — weigh current price vs. strike, term, and volatility (ASC 480-10-55-46).
Answer the questions above to run the ASC 480-10-25-14 predominance test.
ASC 480 subsequent measurement basis
Not all ASC 480 liabilities are fair-valued through earnings — ASC 480-10-35 sets the model by instrument. Pick the one that fits so the measurement and journal entries below are right.
Mandatorily redeemable / physically-settled forward — fixed amount & dateMandatorily redeemable / forward — variable amountWritten put / net-settled forward, or share-settled for a monetary amount
04
Indexation
ASC 815-40-15-7A/7C — two steps: exercise contingencies, then fixed-for-fixed settlement (post ASU 2020-06).
Fail either step and the warrant is not indexed to the issuer’s own stock → liability. A cashless / net exercise does not break fixed-for-fixed — the intrinsic value is identical with or without cash.
Step 1 — exercise contingencies
Are all contingencies tied only to the issuer’s stock / own operations or corporate events (IPO, de-SPAC, change of control, service, time) — and not to an external observable market or index?
Yes — own stock / operationsNo — external market / index
Settlement = fair value of a fixed number of shares less a fixed strike, with only standard anti-dilution and fixed-for-fixed fair-value inputs (volatility, rate, term, dividends)? Cashless / net-share exercise and standard anti-dilution (splits, dividends, recaps) do NOT break fixed-for-fixed — the intrinsic value is identical. Answer “No” for any other variability — including a down-round, a leverage/index/performance term, greater-of terms, or any strike the holder or issuer can elect to change — and then characterize it in the next step.
Yes — fixed-for-fixedNo — other variability
Not fixed-for-fixed and not a pure down-round — leverage, performance-linked shares, external index, or greater-of terms break indexation → liability. Stop.
Fixed-for-fixed feature checklist ASC 815-40-15-7C to -7H
Every feature that could change the strike or the share count must be an input to a fixed-for-fixed forward/option (strike, term, expected dividends, borrow cost, rates, volatility, credit spread, hedge position — ASC 815-40-15-7E) and commercially reasonable (ASC 815-40-25-17). Anything else — leverage, an external variable, a share count tied to a dollar amount or the issuer’s capitalization, or an elective / upward reset — is extraneous (ASC 815-40-15-7F) and breaks indexation → liability. A genuine down-round is preserved (ASU 2017-11 / ASC 815-40-15-5D) but triggers down-round accounting. Mark each feature; the test sets Step 2.
Mark each feature above to run the fixed-for-fixed test. * A genuine down-round is preserved but triggers down-round (deemed-dividend / EPS) accounting.
Characterize the strike / share-count adjustment
You answered “not plain fixed-for-fixed,” so identify what the variability is — only the first two preserve equity. A down-round feature is narrow: it must be automatic, downward-only, and triggered solely by the issuer later selling equity at a lower price (ASU 2017-11 / ASC 815-40-15-5D). If the strike can move at the holder’s or issuer’s election, can increase, or is triggered by anything else, it is NOT a down-round — under ASC 815-40-15-7D any potential adjustment (regardless of probability or whether in the issuer’s control) means the strike is not fixed → liability.
Standard anti-dilution only — splits, dividends, recapsAutomatic down-round / price-reset only — downward, non-discretionaryHolder- or issuer-elective strike change, or one that can increase the strikeOther variability — leverage, external index, performance-linked shares, greater-of
Standard anti-dilution only → does not break fixed-for-fixed; indexation preserved (ASC 815-40-15-7D not failed). Reconsider whether Step 2 should simply be “Yes.”
Genuine down-round only → excluded from Step 2 (ASU 2017-11); indexation preserved. Recognize the feature’s value only when triggered, as a deemed dividend / EPS charge (ASC 260).
Elective or upward strike adjustment → the strike is not fixed (ASC 815-40-15-7D). This is not a down-round and has no exclusion → fails Step 2 → liability. Stop.
Caution — you selected an automatic down-round, but the terms mention discretionary / elective repricing (e.g. “at its option,” “elect,” “increase or decrease the exercise price,” “reprice”). Confirm this is a true automatic, downward-only down-round — a holder- or issuer-elective reprice is a liability, not a down-round.
05
Equity classification conditions
ASC 815-40-25-1 through -25-43, as simplified by ASU 2020-06 — the retained conditions must hold; one failure means liability.
If net cash settlement could be required for any event outside the issuer’s control, classify as a liability. Change-of-control exception (815-40-55-3/5): permitted if the holder receives the same form of consideration as common holders.
ASU 2020-06 removed three former conditions from this analysis: settlement in unregistered shares, no counterparty rights ranking higher than common shareholders, and no collateral. Those are no longer equity-classification barriers — a warrant that must be settled in registered shares, or that has a collateral/seniority feature, is not a liability for that reason alone. Only genuine net-cash-settlement requirements matter (captured in the two gates above).
Physical or net-share settlement (issuer can’t be forced to net cash settle)?
A holder’s choice of paying cash or doing a cashless / net-share exercise is still share settlement — answer “Yes.” Net cash settlement means the issuer pays the warrant’s value in cash. A change-of-control auto net-exercise that mirrors common-holder consideration is fine (815-40-55-3/5).
YesNo
Fails 815-40-25 — issuer can be forced to net cash settle → liability. Stop.
No net cash settlement for events outside the issuer’s control (outside the CIC exception)?
A CIC provision where the holder receives the same form of consideration as common holders — including cash, via an automatic cashless exercise — meets the exception; answer “Yes.” Answer “No” only if the holder can demand cash that does not mirror common holders on an uncontrolled event.
Sufficient authorized & unissued shares, and an explicit share cap?
Enough authorized/unissued shares to settle the warrant after all other commitments, and an explicit limit on the shares deliverable (ASC 815-40-25-19 to -24, as amended by ASU 2020-06). This is a worst-case, maximum-shares test: if the shares fall short — or if shareholder approval / a charter amendment would be needed to authorize more (which is not within the issuer’s control, ASC 815-40-25-19) — equity is precluded and the warrant is a liability. Run the test below.
Yes — sufficient & cappedNo
Fails ASC 815-40-25-19 to -24 — insufficient authorized shares (or approval needed to authorize more, not in the issuer’s control) → liability. Stop.
Sufficient authorized & unissued shares test ASC 815-40-25-19 to -24
Share settlement must be within the issuer’s control. Obtaining shareholder approval to increase authorized shares is not within the issuer’s control, so if there aren’t enough shares the warrant is a liability. These figures usually come from the cap table and charter, not the warrant — enter them below, or upload the cap table / charter above as a related agreement (type “Charter / cap table”), then the test runs automatically.
Enter the authorized-shares figures above (or upload the cap table / charter) to run the test.
Remaining retained conditions met?
Post-ASU 2020-06, only two other conditions remain: no required cash payment if the issuer fails to timely file (a fixed penalty is acceptable), and no cash-settled “top-off” or “make-whole” provision. Registered-share, seniority, and collateral conditions no longer apply.
Yes — both metNo — one fails
Fails a retained 815-40-25 condition (cash for late filing, or cash top-off/make-whole) → liability. Stop.
All retained ASC 815-40-25 conditions satisfied → equity classification.
Retained conditions — assess each ASC 815-40-25-10 (post-ASU 2020-06)
Post-ASU 2020-06 only these two conditions remain (the registered-share, seniority, and collateral conditions were removed). Both must be met for equity classification.
A warrant that is both indexed to the issuer’s own stock and equity-classified is excluded from derivative accounting (815-10-15-74(a)). If it fails equity classification, it is a derivative liability at fair value through earnings. This step reports the conclusion; it does not add a new test.
For reference — can the warrant be net settled (815-10-15-83c)?
Net-share / net-cash / cashless exercise, shares readily convertible to cash, IPO/de-SPAC/CIC liquidity, or a market for the contract.
Yes — meets 815-10 definitionNo — private, not net settleable
06b
Permanent vs. temporary (mezzanine) equity
Track B · SEC registrants
ASC 480-10-S99-3A (SEC ASR 268) — an equity-classified instrument redeemable outside the issuer’s control is presented in temporary equity.
This step runs only after an equity conclusion on the 480/815-40 track, and applies to SEC registrants (and private companies applying SEC guidance, e.g., preparing for an IPO). Equity classification under 815-40 does not end the question — a redeemable equity-classified warrant (or one over redeemable shares) may still belong in temporary (mezzanine) equity, outside permanent equity.
Is the issuer an SEC registrant, or does it apply the SEC’s redeemable-securities guidance?
Public filers, and many pre-IPO companies, apply ASC 480-10-S99-3A. Private companies not applying SEC guidance may stop here (permanent equity).
Can the warrant (or its underlying shares) be redeemed for cash / other assets — at a fixed or determinable date, at the holder’s option, or upon an event not solely within the issuer’s control?
A change-of-control or deemed-liquidation redemption that the holder can trigger, or that isn’t solely in the issuer’s control, counts. Redemption solely at the issuer’s option does not.
Yes — redeemable outside issuer controlNo — issuer-controlled or not redeemable
Redemption-control & measurement test ASC 480-10-S99-3A
Temporary (mezzanine) equity is required if any redemption is at the holder’s option or triggered by an event not solely within the issuer’s control — a deemed liquidation, change of control, or failed IPO / qualified financing (the “not solely in control” test turns on whether the board actually controls the trigger). Redemption only at the issuer’s option, or only on liquidation/termination of the entity, stays in permanent equity. If temporary, also capture the redemption amount and how it is accreted.
Answer the redemption-trigger question above to run the ASC 480-10-S99-3A test.
07
Measurement & recognition
Resolves once the classification gates are answered.
Awaiting inputs
Work through the steps. Classification, measurement, recognition, and journal entries populate here automatically.
08
Proceeds allocation — debt with detachable warrants
ASC 470-20-25-2 (relative fair value) or fair-value-first / residual — the method follows the warrant’s measurement basis.
Appears when the warrant is issued with debt or preferred. Warrant fair value pulls from the calculator below; enter the host fair value and costs. The method is selected automatically from the classification.
The warrant’s allocated value becomes a debt discount amortized to interest expense under the effective-interest method (ASC 835-30); the equity-classified warrant net of its share of issuance costs goes to APIC.
Warrant %–
Debt allocation–
Warrant allocation–
Costs → debt–
Costs → warrant–
Net warrant → APIC–
Debt discount–
09
Valuation model & fair value
ASC 820 / 718-10-55 Level 3 — model selection follows the warrant’s features.
Recommended model
Black-Scholes-Merton
A plain call warrant — fixed strike, fixed shares, exercisable over a fixed term — is a closed-form Black-Scholes-Merton case.
Inputs pre-fill from the terms and the missing-info step. For a private issuer, S is the per-share equity/enterprise value, σ is a guideline-company estimate, and expected term is often the vesting/contractual period.
Monte Carlo simulates price paths (geometric Brownian motion). “Market condition” pays only if the target is reached on a path; “down-round” ratchets the strike down to the lowest price observed below the trigger. Results carry simulation error — increase paths to tighten it.
For an equity-classified ASC 718 award, subsequent measurement recognizes the grant-date fair value as compensation cost over the requisite service (vesting) period (ASC 718-10-35). Market conditions are already in grant-date fair value and are not reversed if unmet; use the expected-to-vest % to reflect service/performance vesting and expected forfeitures. A cash-settled (liability) ASC 718 award is remeasured each period — use the Liability-remeasurement tab.
The grant date is the date a grantor and grantee reach a mutual understanding of the key terms and the grantor is contingently obligated to issue the award (ASC 718-10-20; -25-5) — it is also the measurement date for an equity award. Enter it if you know it; otherwise provide the facts below and the tool will determine it (the latest date all criteria are met). The determined date auto-populates the valuation panel.
Determine the grant date ASC 718-10-20; -25-5; 55-108
Leave the date above blank and answer the criteria — the grant date is the latest date on which all are satisfied.
Enter a known grant date above, or provide the criteria to have the tool determine it.
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Scope & limitations
This tool gives a point-in-time classification, measurement, and valuation. The following are deliberately out of scope and must be handled separately.
Modifications & exchanges. Repricing, term extensions, or other changes to an outstanding warrant are not modeled. Equity-classified freestanding written call options (warrants) follow ASU 2021-04 (ASC 815-40-35-14 to -35-18) — measure the change in fair value, then account for it based on substance (financing cost, dividend, compensation, etc.); compensatory awards follow the ASC 718 modification model.
Reclassification on changing facts. If a contingency resolves, shares become authorized, or a feature lapses, ASC 815-40-35 requires reclassifying between equity and liability at fair value on the date conditions change. Re-run the analysis when facts change; the tool does not track that over time.
Embedded warrants / bifurcation. The tool assumes a freestanding warrant. If Step 1 indicates the feature is embedded, perform the ASC 815-15 bifurcation analysis separately (clearly-and-closely-related, the definition-of-a-derivative and net-settlement tests, and the fair-value-option election).
Adjacent instruments. SAFEs, convertible notes, and preferred stock are not covered here — only warrants. (SAFEs are often ASC 480 variable-share liabilities; analyze separately.)
Not addressed: income-tax effects of share-based payments, the forfeiture-policy election, graded-vesting attribution mechanics, and detailed EPS (two-class / in-substance common) computations.
✎
Review & edit the analysis
Every decision the tool made is editable here. Change any one and the result, journal entries, valuation, waterfall, and the download update to match.
Override the tool’s own conclusions below — e.g. freestanding → embedded, the scope/counterparty, any classification gate, or the measurement basis. Changes apply and recompute automatically, stay in sync with the waterfall above, and flow through to the downloaded analysis. (Editing the underlying agreement text is separate — use “Read the agreement” at the top.)
10
Analysis output & download
Download the analysis exactly as the tool generates it, including the classification waterfall, for the workpaper file.
“Generate analysis” shows the text summary below; the download buttons export the full analysis exactly as the tool generates it — the classification result, instrument and key terms, the classification waterfall with the step-by-step determination and citations, measurement/recognition/journal entries, allocation, valuation, and limitations. “Save as PDF” opens your browser’s print dialog — choose Save as PDF as the destination. If the Word download is blocked in this in-app preview, open the tool in a separate browser tab (downloads work there), or use Save as PDF.
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This tool drafts the analysis. Our Big 4–trained technical accounting team reviews the executed agreement, resolves the judgment calls, and stands behind the memo your auditors will read.
Advisory use. This tool is a preparer aid that documents a warrant classification, measurement, and valuation analysis under US GAAP. Its output is not a substitute for professional judgment, review of the executed agreement, or a signed conclusion. Scope-first logic per ASC 718-10-15 and 606-10-32-25A; classification per ASC 718-10-25 or ASC 480 / 815-40; measurement per ASC 470-20, 835-30, 820, and 606.
Lattice / binomial — early exercise (American-style, common for nonemployee awards), graded vesting, or step-up terms; lets value reflect node-by-node exercise.
Monte Carlo simulation — path-dependent features: market conditions (stock-price/TSR targets) and down-round / price-reset provisions.
Performance conditions are handled by probability-weighting the awards expected to vest — outside the option model, not inside the fair value.
Inputs
Underlying price (S). For a private issuer, the per-share equity/enterprise value — typically from a 409A or a recent financing, allocated with an OPM/PWERM.
Volatility (σ). Private companies use guideline-public-company volatility over a period matching the expected term.
Risk-free rate (r). US Treasury yield matching the expected term.
Expected term (T). For warrants, often the full contractual term; for compensatory options the SAB 107/110 simplified method is acceptable for “plain-vanilla” awards when other data is unavailable.
Dividend yield (q). Zero for most VC-backed issuers.
Nonpublic-entity practical expedients (ASC 718)
Intrinsic value. A nonpublic entity may elect to measure liability-classified awards at intrinsic value (ASC 718-10-30-21+).
Calculated value. If it’s not practicable to estimate its own share volatility, a nonpublic entity may substitute the historical volatility of an appropriate industry index — “calculated value” (ASC 718-10-30-20).
Current price of the underlying share. Under ASU 2021-07, a nonpublic entity may elect a practical expedient to determine the current price input using a reasonable-application (409A-type) valuation.
Expected term. A nonpublic entity may apply the practical expedient in ASC 718 for estimating expected term.
Limitations. The built-in calculator is Black-Scholes-Merton only. For a market condition, down-round, or early-exercise/graded award, use a lattice or Monte Carlo model outside this tool; the recommendation above flags which. All inputs and the resulting fair value require preparer judgment and, where significant, a qualified valuation specialist.