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Hello Sir, I’m sure if you have the kit so I’ll write my doubt here.
On 31 March 2006 Highwood factored trade receivables with a book value of $ 10million to Easyfinance. Highwood received an immediate payment of $8.7 million and will pay Easyfinance 2% per month on any uncollected balances. Any of the factored receivables outstanding after six months will be refunded to Easyfinance. Highwood has derecognised the receivables and charged $1.3 million to admin expenses. If Highwood had not factored these receivables it would have made an allowance of $600,000 against them.
Sir can you please explain me the treatment of this adjustment because I couldn’t understand the answer.
Thanks.You’re wrong – I don’t have the question easily available
However, ask yourself have the risks and rewards of ownership substantially been transferred? And the answer to that question is clearly, NO. If the receivables don’t pay. The debt comes back to Highfield.
This is, therefore, a loan transaction
Reconstruct the receivables figure, debit receivables and credit a loan account.
Now, can you take it from there?
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