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Beth December-2007

Forums › ACCA Forums › ACCA SBR Strategic Business Reporting Forums › Beth December-2007

  • This topic has 1 reply, 2 voices, and was last updated 9 years ago by MikeLittle.
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  • November 5, 2015 at 3:26 pm #280620
    Nagina
    Participant
    • Topics: 2
    • Replies: 0
    • ☆

    Beth sold some trade receivables which arose during November 2007 to a factoring company on 30 November
    2007. The trade receivables sold are unlikely to default in payment based on past experience but they are long
    dated with payment not due until 1 June 2008. Beth has given the factor a guarantee that it will reimburse any
    amounts not received by the factor. Beth received $45 million from the factor being 90% of the trade receivables
    sold. The trade receivables are not included in the balance sheet of Beth and the balance not received from the
    factor (10% of the trade receivables factored) of $5 million has been written off against retained earnings

    Please help me understand the above adjustment….!!!

    November 6, 2015 at 4:39 pm #280867
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23327
    • ☆☆☆☆☆

    This is how I answered yesterday the same question on Ask ACCA Tutor!

    Is there a problem with the explanation?

    “Risks and rewards have not been passed over to the factor so the receivable has not in fact been sold. It is still a receivable by Beth and should be shown as such

    The $5m money less 10% is a loan from the factor and should be recorded as Dr $4.5m Cash, Dr $500,000 Finance Charges, Cr $5m Loan account”

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