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As a trade receivable : an amouth of $10,000 due from customer which has been sold (Factored) to a finance company with no recourse to the seller .
According to The Board’s Conceptual Framework for Financial reporting defines recognition as the process of incorporating in the FS an item which meets the definition of an element and satisfy certain critieria .
Should the above be recognised in the FS?
Answer is No: there was no reason on this answer.
Also, continuing to recognise factored trade receivables sold with recourse : is it a faithful representation based on Conceptual Framework for Financial reporting?
Kaplan kit : NO
Reasons : The risk of irrecoverable debt that the purschaser to do not carry shows that there is no transfer of control and hence the substance of the transaction is the they should not be derecognised !
Trade receivables with no recourse means transfer of control have been passed to buyer but with recourse, no transfer of control have been passed . I taught it’s a faithful repression if we recognise it with no recourse in the FS !
Is trade receivables sold with no recourse not asset that we schould reconginsed ?
The asset is gone and we have the cash with no risk .
Does this not meet the definition and criterias for recognitions ?
“Is trade receivables sold with no recourse not asset that we schould reconginsed ?
The asset is gone and we have the cash with no risk .
Does this not meet the definition and criterias for recognitions”
You’re going round in circles!
If it’s sold with no recourse, that means that the factor cannot come back to us if the debt goes bad – the factor has no recourse
It means that the factor, in practice, has given us a heavily discounted amount in recognition of the fact that the factor is going to bear the cost of any bad debts
“means transfer of control have been passed to buyer but with recourse, no transfer of control have been passed” – that’s correct, so we will not de-recognise it and leave it within our Receivables figure (Dr Cash Cr Loan from Factor)
If it’s sold with no recourse, we will correctly de-recognise (Dr Cash Cr Receivables)
“Is trade receivables sold with no recourse not asset that we schould reconginsed ?”
Correct
“The asset is gone and we have the cash with no risk .”
Correct
“Does this not meet the definition and criterias for recognitions ?”
No – it meets the definition for non-recognition
You need to sort out in your head what “recognition” means in the context of figure / amounts to include within a set of financial statements
OK?
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