Accounting for Transfers pg 191

Question 1

General Requirements for Transfer of Assets

Answer 1

1.Sale: surrender of control of entire asset, transfer is accted for as sale and asset derecognized by transferor
2.Secured Borrowing: Surrender of control of entire asset NOT met,
3. Surrender of Control of Component:
>Sale: If surrender of control is met, but asset divided into components prior to transfer, transfer accted for as sale ONLY if all components involve participating interest
>Secured Borrowing: Surrender of control NOT met or components of transferred asset DO NOT involve participating interest transfer accted for as secured borrowing w/ pledge of collateral (asset NOT derecognized by transferor)

Question 2

Accounting Guidelines for Transfer of Assets

Answer 2

1. Derecognized financial asset or portion for which transfer qualifies as sale
2. Continue to carry in balance sheet any retained interest in transferred asset
   >Entire asset in secured borrowing
   >Components of transferred asset over which transfer would be allocated b/w portion transferred and portion retained based on relative FV @ date of transfer
3. Recognize any A/L that result from transfer of Financial Asset
4. Accounting for transfer should be accted for symmetrically by transferor and transferee

Question 3

Transferor Accounting for Sales

Answer 3

• Writing off CV of all assets sold
• Writing on all A/L incurred by sale (asset doesn’t include interest)
• Measuring ALL A/L @ FV
• Recognizing in current earnings any G/L on sale as diff b/w net proceeds received and CV of asset sold

Question 4

Transferee Accounting for Sales

Answer 4

• Writing on ALL assets obtained and liabilities incurred (Asset includes participating interest)
• Measuring ALL A/L @ FV (price pd)

Question 5

Accounting for Transferred Collateral by Transferor on Secured Borrowing

Answer 5

-Initial Recog: Upon transfer transferor initially will recognize asset received from transferee & liability to transferee
-Sub Recog: Transferor has NOT defaulted under terms fo contract, transferor will continue to carry collateral on its books as asset (transferee will NOT recognize pledged asset)
>If transferee has right to sell asset, transferor will reclassify pledge asset separate from other assets in BS
-Sub Recog: Transferor HAS defaulted under terms of contract and no longer entitled to redeem pledged asset, transferor will write off pledged assest (transferee WILL recognize asset)

Question 6

Acounting for Transferred Collateral by Transferee on Secured Borrowing

Answer 6

Intital Recog: Upon transfer, transferee will recognize receivable from transferor and reduction in asset transferred to transferor
Sub Recog: If transferor has NOT defaulted under terms of contract, transferee will NOT recognize pledged asset
>If transferee has right to sell asset and exercises that right transferee will recognize DR Cash Proceeds from Sale CR Pledged Collateral Liability
Sin Recog: If transferor HAS defaulted under terms of contract, transferee will recognize collateral as asset @ FV OR derecognize liability to tranferor if collateral has been sold

Question 7

Servicing Functions

Answer 7

1. Collecting principle, interest, escrow amts & fees
2. Paying Taxes, insurance and other obligations
3. Performing accting and other services

These become distinct A/L ONLY when contractually separated from underlying asset. Separation can occur either 1. result of sale of assets w/ servicing right retained by seller OR 2. as result of separate purchase of servicing right

Question 8

Servicing Asset & Servicing Liability

Answer 8

1. SA: Results when estimated future revenues are expected to exceed estimated costs of servicing assets as reflected by FV
2. SL: Results when estimated future revenues are not expected to be as mush as expected costs of servicing assets as reflected by FV
3. SA/AL will initially be measured at FV
4. Subsequent Measure:
   >Amortized in proportion to and over period of est net income/loss and assess asset or liability for impairment or increase obligation based on FV OR
   >Adj to FV @ each reporting date w/ gains/losses recognized in current income