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CA Final · Financial Reporting · Recognition and Derecognition of Financial Instruments

Tulsi Retail Ltd transfers trade receivables with a carrying amount of ₹1,00,00,000 to a financing company and receives ₹90,00,000. The transfer does not meet the derecognition criteria for financial assets, because Tulsi retains substantially all the risks and rewards. What is the correct accounting under Ind AS 109?

Tulsi continues to recognise the ₹1,00,00,000 receivables and records a ₹90,00,000 liability for the cash received. Because the transfer fails the derecognition criteria, the assets are not derecognised and a new liability relating to the transferred assets is recognised, with no loss on sale.

  1. ADerecognise the receivables and recognise a loss of ₹10,00,000
  2. BDerecognise the receivables and recognise a gain of ₹90,00,000
  3. COffset the ₹90,00,000 cash against the receivables and show a net ₹10,00,000 receivable
  4. DContinue to recognise the receivables of ₹1,00,00,000 and recognise a liability of ₹90,00,000 for the proceeds receivedCorrect

Explanation

If the derecognition criteria are not met, the transferred assets are not derecognised and the entity recognises a new liability relating to the transferred assets. Tulsi therefore keeps the ₹1,00,00,000 receivables and records a ₹90,00,000 liability for the cash received. Derecognition with a ₹10,00,000 loss would be correct only if the criteria were met.

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