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Hi all
Please can someone assist with point (v) in the consolidated question of June 2012
Please explain why the 0.4 is a profit and not loss as we will only be receiving 3.6m after factoring the debt
why are we adding it back to trade receivables?
Thanks
AnisaI don’t have the question ready to hand but I’m guessing …. is this where we have factored a debt and the directors have Dr Cash $3.6 Dr Statement of Income $0.4 and Cr Receivables $4
But in fact, the risks and rewards have not been substantially transferred and, if the receivable doesn’t pay within a pre-determined time period, the factor will transfer the debt back? If I’m correct, then we need to reverse the entry put through by the directors …so, Dr Receivables $4, Cr Cash $3.6 and Cr Statement of Income $0.4
And now record the correct entry Dr Cash $3.6 and Cr Loan Account $3.6
Is my guess correct? Or do I need to get hold of the question?
Its correct – basically have to look at if risks and rewards have been retained or not.
Thanks
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