CA Final · Advanced Financial Management · Securitization
Sunrise Finance Ltd. (originator) pools 500 auto loans of Rs 4 lakh each, total Rs 20 crore, and sells the pool to an SPV at Rs 20.5 crore. The SPV issues pass-through certificates (PTCs) for the full price paid. What is the premium/gain the originator books on the sale of the receivables at the point of sale, ignoring costs?
The originator's gain is Rs 50 lakh. The pool's book value is Rs 20 crore (500 loans of Rs 4 lakh) and it is sold for Rs 20.5 crore, so the excess of sale price over carrying amount is the gain on sale.
- ARs 50 lakh gainCorrect
- BRs 20.5 crore gain
- CRs 50 lakh loss
- DRs 2.5 crore gain
Explanation
Pool book value = 500 x Rs 4 lakh = Rs 20 crore. Sale price = Rs 20.5 crore. Gain = 20.5 - 20.0 = Rs 0.5 crore = Rs 50 lakh. Rs 20.5 crore is the sale value, not the gain, and treating the difference as a loss reverses the sign.
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