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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 neither retained
The transferor has
Continued recognition of the transferred asset
nor transferred substantially all risks retained control.
to the extent of the transferor's continuing
and rewards- situation (3) above.
involvement in the asset. The transferor
recognizes a gain or loss for any part that
qualifies for derecognition.
The transferor has lost
Derecognition. The transferor recognizes any
control.
resulting gain or loss.
The transferor has transferred substantially all risks and
Derecognition. The transferor recognizes any
rewards-situation (2) above.
resulting gain or loss.
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.