Derecognised Assets

Hi Sir

Thank you for your lectures – they’re very helpful.

I’ve found a number of examples relating to how to correct an accounting error where receivables have been incorrectly derecognised, following the factoring of receivables. I can’t, however, find any examples of what the double entry would be if in fact the factoring of receivables was without recourse (the original seller disabused themselves of all of the associated risks and rewards) and the factoring therefore does constitute a “sale” of the receivables asset.

Would you be able to advise on what the double entry would be to account for the factoring, in the first instance, when the factoring of trade receivables is with recourse and, ultimately, the risks and rewards pertaining to the receivables is still incumbent on the original seller?

Question 10, of the mini exercises (answer on page 242) illustrates a correction to the incorrect accounting treatment. The receivables allowance is debited, but aren’t receivables allowances ordinarily credited and the bad debt expense then debited to the statement of profit or loss? Further, if an organisation has factored its receivables, but maintains the risks and rewards associated with the timing and percentage of collection, would that mean that it should maintain any associated receivables’ allowances?

Thank you so much.