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Dear Sir / Madam,
Robby held a portfolio of Trade Receivables with a carrying amount of 4 Million at 31st May 2012 ( Balance Sheet Date). At that date the entity entered into a factoring agreement with a bank whereby it transfers the receivables in exchange for 3.6 million in Cash. Robby has agreed to reimburse the factor for any shortfall between the amount collected and 3.6 Million. Once the receivables have been collected any amounts above 3.6 million less interest on this amount will be repaid to Robby. Robby has De-recognized the receivables and charged 0.4 Million as a loss to profit or loss.
Treatment
Cash A/c Debit 3.60
Loss ( Reserves) – Debit – 0.40
Trade Receivables – Credit 4 -0Upon consolidation
1) Add Cash of 3.60 to Current Asset
2) Knock off Trade Receivables of 4.00 from Current Asset
3) Reserves Calculation – adjustment of (.0.40) i.e reduce reserves by loss of 0.40What ACCA Solved example has done to the above , I am not able to understand.
Kindly help to make me understand.
Deepak
Dear Sir,
ACCA solved example has added 4 Million to Current Asset and added 0.40 in General Reserves. This is beyond my comprehension. Kindly help me to understand.
Deepak
Dear Sir,
Solved example by ACCA has added 4 Million to Current Asset and added 0.40 in General Reserves. This is beyond my comprehension. Kindly help me to understand.
Deepak
This is factoring with recourse where risk and rewards aren’t transferred to the factor. So, Robby can’t derecognise trade receivables and no loss should be recorded, instead trade receivables should be recognised again by 4m, 3.6 amount should be recorded under current liability head as Robby has agreed to reimburse any shortfall between the amount calculated and 3.6m.
The loss at this point too should be reversed by crediting CR by 0.4m.Dear Sir / Madam,
Thank you very much for prompt and crystal clear reply . Kindly throw some light on the following
1) How the transaction of receipt of cash of 3.60 M is recorded ! Will it not have bearing on Current Asset Consolidation.
2) Why we are reversing 0.40 loss – are we assuming that it has already been effected in the books of accounts !
3) Here adjustment clearly tell us that entity has de recognized Trade Receivable nevertheless should we be sticking to what you have explained as above.Kindly guide.
Deep
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