Transfer of Receivable with recourse
Question:
“Search accounting standards to determine when the sale with recourse must be shown on the balance sheet as liability and when it can be considered as a true sale and no liability need be shown.”
Answer:
Accounting standards to determine when the sale of receivables with recourse must be shown on the balance sheet as a liability or as a true sale actually is based on ASC 860. ASC 860 established the procedures used to determine whether the sale of receivable is a true sale or a liability.
First of all, paragraph 860-10-05-15 provides background on transfers of receivable with recourse. It states that
“In a transfer of an entire receivable, a group of entire receivables, or a portion of an entire …show more content…
Transferee's rights to pledge or exchange. It means that buyer has right to dispose or in other word, the transferor can reasonably estimate its obligation under the recourse provisions,
3. Effective control. It means that the transferee cannot return the receivables to the transferor except pursuant to the recourse provisions.
If the transaction fails to meet the three conditions above so the amount of proceeds from the transfer should be reported as a liability.
Computing gain or loss
ASC 860 also explains that if the sale of receivables is recognized as a true sale, receivables should remove from balance sheet, and then, recognized gain or loss in income. The transferor also should anticipate chargebacks from the transferee by estimate effects of any defects in the eligibility of the transferred receivables or called as recourse obligation. The recourse obligation is measured at its fair value on the date of sale.
Borrowing against receivables
In this case, if the sale of receivables is classified as a secured borrowing (borrowing against receivables) so that receivables should stay on balance sheet, and then loan should be shown in balance sheet as a liability. Furthermore, there is no gain or loss recognized in income. The detail of a secured borrowing is explained in ASC
Question:
“Search accounting standards to determine when the sale with recourse must be shown on the balance sheet as liability and when it can be considered as a true sale and no liability need be shown.”
Answer:
Accounting standards to determine when the sale of receivables with recourse must be shown on the balance sheet as a liability or as a true sale actually is based on ASC 860. ASC 860 established the procedures used to determine whether the sale of receivable is a true sale or a liability.
First of all, paragraph 860-10-05-15 provides background on transfers of receivable with recourse. It states that
“In a transfer of an entire receivable, a group of entire receivables, or a portion of an entire …show more content…
Transferee's rights to pledge or exchange. It means that buyer has right to dispose or in other word, the transferor can reasonably estimate its obligation under the recourse provisions,
3. Effective control. It means that the transferee cannot return the receivables to the transferor except pursuant to the recourse provisions.
If the transaction fails to meet the three conditions above so the amount of proceeds from the transfer should be reported as a liability.
Computing gain or loss
ASC 860 also explains that if the sale of receivables is recognized as a true sale, receivables should remove from balance sheet, and then, recognized gain or loss in income. The transferor also should anticipate chargebacks from the transferee by estimate effects of any defects in the eligibility of the transferred receivables or called as recourse obligation. The recourse obligation is measured at its fair value on the date of sale.
Borrowing against receivables
In this case, if the sale of receivables is classified as a secured borrowing (borrowing against receivables) so that receivables should stay on balance sheet, and then loan should be shown in balance sheet as a liability. Furthermore, there is no gain or loss recognized in income. The detail of a secured borrowing is explained in ASC