IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

246

Wiley IFRS: Practical Implementation Guide and Workbook

5.1.10 If the transferor has lost control of the transferred asset, the financial asset is derecognized in its entirety. If there is a difference between the asset ' s carrying amount (adj usted for any de– ferred unrealized holding gains and losses in equity) and the payment received, a gain or loss is recogni zed in the same way as in situation ( I). 5.1.1 1 If the transferor has retained control over the transferred asset, the entity continues to rec– ognize the asset to the extent of its continuing involvement. The continuing involvement is deter– mined based on the extent to which the entity continues to be exposed to changes in amounts and timing of the net cash flows of the transferred asset (i.e., based on its nominal or maximum expo– sure to changes in net cash flows of the transferred asset). Example An example ofa transaction where an entity neither retains nor transf ers substantially all risks and rewards ofownership-situation (3 )-is • A sale ofa group ofaccounts receivables where the transferor issues a guarantee to compen– sate the buyer for any credit losses incurred in the group up to a maximum amount that is less than the expected credit losses in the group For instance, if an entity sells a loan portfolio that has a carrying amount of $100,000 fo r $99,000 and provides the buyer with a guarantee to compensate the buyer fo r any impairment losses up to $1,000 when expected losses based on historical experience is $3,000, the entity may determine that it has neither retained nor transf erred substantially all risks and rewards ofownership. Therefore, it must evaluate whether it has retained control of the transferred asset. If the entity has retained con– trol, the seller would continue to recognize $1,000 as an asset and a corresponding liability to refl ect its continuing involvement in the asset (i.e., the maximum amount it may pay under the guarantee) and derecognize the remainder ofthe carrying amount of the loan portfolio of $99,000. 5.1.12 The next table summarizes the accounting treatments for the three types of transfers just described . Situation AccountinJi treatment The transferor has retained substantially all risks and rewards- Continued recognition of the transferred asset. situation (I) above. Any consideration received is recognized as a borrowing.

The transferor has

Continued recognition of the transferred asset to the extent of the transferor's continuing involvement in the asset. The transferor recognizes a gain or loss for any part that qualifies for derecognition.

The transferor has neither retained

nor transferred substantially all risks retained control.

and rewards- situation (3) above.

The transferor has lost

Derecognition. The transferor recognizes any

control.

resulting gain or loss.

Derecognition. The transferor recognizes any

The transferor has transferred substantially all risks and

resulting gain or loss.

rewards-situation (2) above.

5.1.13 Pass-Through Arrangements 5.1.13 .1 It is not always necessary for an entity actually to transfer its rights to receive cash flows from a financial asset in order for the asset to qualify for derecognition under lAS 39. Under cer– tain conditions, contractual arrangement s where an entity continues to collect cash flows from a financial asset it holds, but immediate ly passes on those cash flows to other parties , may qualify for derecognition if the entity is acting more like an agent (or "post box") than a principal in the ar– rangement. Under such circumstances, the entity's receipts and payment s of cash flows may not meet the definitions of assets and liabilities. 5.1.13.2 Thus, lAS 39 specifies that when an entity retains the contractual rights to receive the cash flows of a financial asset (the "original asset"), but assumes a contractual obligation to pay those cash flows to one or more entities (the "eventual recipient s"), the entity treats the transaction as a transfer of a financial asset if, and only if, all of these three conditions are met: ( I) The entity has no obligation to pay amount s to the eventual recipients unless it collects equivalent amounts from the original asset. Short-term advances by the entity with the right of full recovery of the amount lent plus accrued interest at market rates do not violate this condition.

Made with