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Dear sir,
In this case, Formatt had transferred the first $7m + interest collected from third party to Window (in total loan $8m to 3rd party).
The IFRS 9 mention: “Where a part of a financial instrument (or group of similar financial instruments) meets the criteria above, that part is derecognised (IFRS 9: para. 3.2.2(a)).”
So I supposed in the BS, the $7m + interest collected from third party should be derecognise since its risk and rewards had been substantially transferred to Window, the remaining part of $1m was still recognised as FA in BS.
But in the answer, the full amount was recognised with 12-month expected credit losses.
Could you please clarify?
The standard specifies that if you transfer substantially all the risks and rewards you should do you recognise the asset. Also that if you retain control of the asset you should not derecognise.
On balance I think I agree with the examiners answer but it’s a fine point. As always all they are looking for is that you can explain the basic rules clearly and it is not serious if your conclusion is slightly different from the answer.
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