Beneficial conversion feature definition

What is a Beneficial Conversion Feature?

A beneficial conversion feature occurs when a conversion feature is in the money. This means that the conversion price of a convertible security is lower than the fair value of the instrument into which the convertible instrument is convertible. The holder of the convertible instrument realizes a benefit in the amount of this price difference. Conversely, the issuer of the security realizes an expense in the amount of the price difference, which is classified as a financing cost.