SFAS No.

41 Accounting of Warrant

SFAS No. 41

ACCOUNTING OF WARRANT

Paragraph

PREFACE 01 - 03

Objective 01

Scope 02

ELUCIDATION

Detachable Warrant 04 - 14

Non-detachable warrant 05 - 06

Naked Warrant 07 - 09

Warrant as an equivalent of stock 13

Disclosure 14

STATEMENT OF FINANCIAL ACCOUNTING STANDARD

No. 41 REGARDING THE ACCOUNTING OF WARRANT 15 - 23

Disclosures 22

Effective Date 23

INTRODUCTION

Objective

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SFAS No. 41 Accounting of Warrant

01. This Statement addresses the accounting treatment of warrants, either warrants
issued together with the issuance of debt securities, warrants issued together with
shares, or warrants that are issued separately from other securities..

Scope

02. This statement addresses the accounting of warrant by the issuer, either warrants
issued together with other securities or warrants issued separately.

Definitions

03. Following are definitions of terms used in this statement :

Securities are marketable instruments such as promissory notes, commercial papers,

shares, bonds and units of participation in a collective investment contract. Included in the
securities are forward contracts and any other derivatives thereof..

Warrants are securities issued by a company, which give the right to the holders to
acquire shares from the company at a certain price for a specific period of time.

Detachable warrant is a warrant issued together with other securities and can be traded
separately from such security.

Non-detachable warrants are warrants which are attached to the debt securities and
cannot be traded separately from the such securities. Non-detachable warrants should be
traded together with the debt securities as a unit (package), for instance, convertible
bonds.

Naked warrants are warrants issued separately without accompanying issuance of other
securities.

EXPLANATION

04. As warrants give their holders the right to acquire shares from a company,
warrants are classified as equity securities. The issuance of warrants may
accompany the issuance of debt securities.

Detachable warrants

05. Proceeds obtained from the issuance of debt-related securities which are
accompanied with detachable warrants are allocated to both securities based on the
respective fair values of each security at the time of issuance. The fair value
allocated to warrants is reported as Other Paid in Capital and the remainder which
constitutes the fair value of the debt security is reported as a liability.

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SFAS No. 41 Accounting of Warrant

06. If warrants are exercised, the sum of the proceeds from the exercise and the fair
value allocated to the warrants shall be recognized as Paid in Capital and
Additional Paid-in Capital (if any). If warrants are not exercised before the end of
their exercise period, the carrying value of the warrants recognized at the time of
issuance should continue to be presented as Other Paid in Capital.

Non-detachable warrants

07. Proceeds from the issuance of debt securities accompanied by non-detachable

warrants are reported as liabilities.

08. Companies which issue non-detachable warrants accompanying the issuance of

debt securities, for instance, in the form of convertible bonds, is obligated to pay
and settle the debt securities if the warrants are not exercised. Consequently, the
value of non-detachable warrant is not separately recognized and therefore all the
proceeds obtained from the issuance of the debt securities are recognized as
liabilities.

09. If a warrants accompany the issuance of shares, all the proceeds from the
issuance of shares are recognized as Paid in Capital and Additional Paid-in
Capital (if any).

Naked Warrant

10. Companies generally issue naked warrants as an incentive to the shareholders. The
issuance of naked warrants to the shareholders can be made free of charge or for a
certain payment.

11. For the issuance of naked warrants which must be paid for by the recipient,
the payment should be recorded as Other Paid-in Capital.

12. If naked warrants are issued free of charge to the shareholders, there is no
need to record the warrants as described under paragraph 09.

Warrants as share equivalent

13. Since warrants constitute equity securities the issuance of warrants results in
the dilution of the earnings per share.

Disclosures

14. The Financial Statements must disclose :

a. The basis for determining the fair value of the warrants

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SFAS No. 41 Accounting of Warrant

b. The value of warrants not yet exercised and the value of unexercised
warrants.
c. The amount of issued and outstanding warrants and as well as the
dilution effect, and
d. conditions associated with the issuance of warrants.

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SFAS No. 41 Accounting of Warrant

STATEMENT OF THE FINANCIAL ACCOUNTING STANDARD No. 41

ACCOUNTING OF WARRANTS

This statement of the Financial Accounting Standard No. 41 consists of paragraphs

15-23. This statement must be read in the context of paragraph 01-14.

Detachable warrants

15. Proceeds obtained from the issuance of debt securities which is accompanied by
detachable warrants shall be allocated to both securities based on the respective
fair values of each security at the time of issuance. The fair value allocated to
warrants is reported as Other Paid in Capital and the remainder, which constitute
the fair value of the debt security is reported as a liability.

16. If the warrants are exercised, the sum of the proceeds from the exercise and the
fair value allocated to those warrants are recognized as Paid in Capital and
Additional Paid-in Capital(if any). If the warrants are not exercised until the end
of the exercise period, the carrying value of the warrants recognized at the time of
issuance should continue to be presented as other Paid in Capital.

Non-detachable warrants

17. Proceeds from the issuance of debt securities accompanied by non-detachable

warrants are reported as liabilities..

18. If warrants accompany the issuance of shares, all the proceeds from the issuance of
shares are recognized as Paid in Capital and Additional Paid-in Capital(if any).

Naked warrants

19. For the issuance of naked warrants which must be paid by the recipient, the
payments should be recorded as Other Paid-in capital.

20. If warrants are issued free of charge to the shareholders, there is no need to be
accounted for as discussed in Paragraph 9.

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SFAS No. 41 Accounting of Warrant

Warrants as Stock equivalent

21. As warrants constitute equity securities, the issuance of warrants results in a

dilution of the earnings per share.

Disclosures

22. The financial statements must disclose :

a. the basis in determining the fair value of warrants
b. the value of warrants which not yet exercised and the value of unexercised
warrants.
c. the amount of issued and outstanding warrants and their dilution effect
d. conditions associated with the issuance of warrants

Effective date

23. This statements is effective for the preparation and presentation of financial
statements covering the reporting period beginning on or after 1 January, 1998.
Early implementation is strongly encouraged.

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