ACCA Strategic Professional · Strategic Business Reporting (International) · Financial instruments
Harbor plc sells a portfolio of trade receivables with a carrying amount of $4.0m to a bank for $3.8m cash. The sale is without recourse: Harbor has no obligation to repay the bank if customers default, retains no servicing role and has no right to repurchase. How should Harbor account for the transaction under IFRS 9?
Harbor should derecognise the receivables and recognise a $0.2m loss in profit or loss. A non-recourse sale with no retained servicing or repurchase right transfers substantially all risks and rewards, so the difference between the $4.0m carrying amount and $3.8m proceeds is an immediate loss.
- ADerecognise the receivables and recognise a loss on disposal of $0.2m in profit or lossCorrect
- BContinue to recognise the receivables and recognise a $3.8m secured borrowing
- CDerecognise the receivables and defer the $0.2m loss over the life of the receivables
- DDerecognise the receivables and recognise the $0.2m loss in other comprehensive income
Explanation
Substantially all risks and rewards, including credit risk, have passed and control is lost, so the receivables are derecognised. The difference between the carrying amount of $4.0m and proceeds of $3.8m is a $0.2m loss recognised in profit or loss. Deferring the loss or taking it to OCI is not permitted, and a borrowing arises only where risks are retained.
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