When is a receivable impaired?
When future cash flows are less than carrying value
What are the three steps of the impairment assessment?
- Significant receivables are individually assessed
- Significant receivables not impaired are grouped and collectively assessed
- Insignificant receivables are collectively assessed
What method is used to calculate the collective assessment approach for impairment measurement of receivables?
Percentage of receivables
At what point should a receivable no longer be included as an asset?
- When the receivable no longer has any value (ie, Bankruptcy)
- When the receivable is transfered (ie, sold)
Fill in the blank:
US GAAP derecognizes financial assets based on a _______ ____. US GAAP considers a transaction a sale if _______ of the receivable is transferred from the seller to the buyer
- control test
- control
Fill in the blank:
IFRS derecognizes financial assets based on a test of ____ ___ _______ first and considers a test of control second
risk and rewards
US GAAP outlines three key tests that must be satisfied to derecognize financial assets. What are they?
- Transferred assets are isolated from transferor
- Transferee has the right to pledge or sell assets
- Transferor does not maintain control through repurchase agreement
The transfer of receivables to a third party for cash happens in one of two ways. They are:
- Secured borrowing
- Sale of receivables
- With a guarantee (recourse)
- Without a guarantee
When buying receivables, the purchaser generally assumes the risk of collectibility and absorbs any credit losses. A sale of this type is often referred to as a sale…
without guarantee (without recourse) against credit loss
A sale without a guarantee (without recourse) is considered to be a
IFRS: SALE
GAAP: SALE
A sale with a guarantee (with recourse) is considered to be a
IFRS: LOAN
GAAP: SALE
What is secured borrowing?
When receivables are used as collateral in a borrowing transaction.
Impairment loss is calculated as the difference between:
- the carrying amount (generally the principal plus accrued interest) and
- the present value of future cash flows
Does GAAP permit the recording of a recovery of an impairment loss in a troubled debt situation?
No
