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

Veda Textiles Ltd, which follows Ind AS, holds a trade receivable of Rs 10 lakh from a customer. On 31 March 2026 the customer's obligation is legally released by the court in a settlement, and the contractual rights to the cash flows are extinguished. Under Ind AS 109, when does an entity derecognise a financial asset?

An entity derecognises a financial asset when, and only when, the contractual rights to its cash flows expire, or it transfers the asset in a way that qualifies for derecognition. Late collection, bank receipt timing or overdue days are not the test under Ind AS 109.

  1. AOnly when the contractual rights to the cash flows expire, or when it transfers the asset and the transfer qualifies for derecognitionCorrect
  2. BWhenever the entity expects the receivable to be collected late
  3. COnly when the cash has actually been received in the bank
  4. DWhen the receivable is past due by more than 90 days

Explanation

Ind AS 109 (para 3.2.3) says an entity derecognises a financial asset when, and only when, the contractual rights to the cash flows expire, or it transfers the asset and the transfer qualifies for derecognition. Here the rights have expired, so the receivable is derecognised. Waiting for cash receipt or a 90-day overdue test is not the criterion.

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