Chapter 7 - Cash and Cash Receivebles

Question 1

What are the three criteria that constitute the sale of accounts receivable under ASPE?

Answer 1

1) The transferred assets are isolated from the seller
2) The transferee has the right to pledge or exchange the assets that it has received.
3) The transferor does not maintain control over the transferred assets through an agreement to repurchase or redeem through which the assets can be transferred back to them.

Question 2

What happens if any one of the above criteria are not met?

Answer 2

Then it will not constitute as a sale of the accounts receivable and rather it will be treated as a loan with applicable interest.

Question 3

What are the two criteria for the constitute of a sale of the accounts receivable under IFRS?

Answer 3

1) The company has transferred the contractual rights to receive cash flow from the accounts receivable.
2) The company retains the right to receive the cash flow from the accounts receivable but has a contractual obligation to pay these cash flows to one or more recipients.

Question 4

With respect to the second criteria under IFRS. What are the three criteria that must be met under that?

Answer 4

1) The seller agrees to remit the cash collected from the accounts receivable to the buyer of the accounts receivable when it is received.
2) The seller agrees that they will not use the accounts receivable as a collateral for a loan, rather it will only be used for this transaction between the two parties.
3) The remittance of cash must happen as soon as possible once they receive the cash.

Question 5

What is a general assignment?

Answer 5

A company borrows money and uses their accounts receivable as collateral for a loan.

Question 6

What is a specific assignment?

Answer 6

A company borrows money and specifies accounts receivable that will be used as collateral against the borrowed amount at a certain time. The accounts receivable used as collateral will be held separate.

Question 7

What does without recourse mean?

Answer 7

The factor takes all the responsibility of collecting the accounts. We can de recognize the accounts receivable, record the sale, and record the loss or gain on the disposal.

Question 8

What is a factor?

Answer 8

Finance companies or banks that purchase accounts receivable.

Question 9

What does selling accounts receivable by scrutinization mean?

Answer 9

Buyers will pool receivables rom various companies and sell portions or units of these pools to the investors.