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CMA Final · Strategic Financial Management · Securitization

A bank securitises a loan pool with outstanding principal of Rs 80 crore at a sale price of Rs 82 crore. Which of the following is the accounting-relevant feature that determines whether the bank can derecognise the assets?

Derecognition depends on whether substantially all risks and rewards of ownership of the loans have passed to the SPV. Sale price above book value, SPV location or listing of the certificates does not by itself allow the bank to remove the assets from its books.

  1. AWhether the sale price exceeds the book value of the pool
  2. BWhether the SPV is located in India
  3. CWhether substantially all risks and rewards of ownership have been transferred to the SPVCorrect
  4. DWhether the PTCs are listed on a stock exchange

Explanation

Derecognition depends on transfer of the contractual rights and substantially all risks and rewards of ownership. A gain on sale or listing of the PTCs does not decide derecognition, and the SPV's location is irrelevant.

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