Full derecognition with recognition of new assets or liabilities

Full derecognition (transferred off-balance sheet) – with recognition of any new assets or liabilities

Assets

95% of transfers resulting in full recognition are simple, the entity that has recorded a financial asset receives cash and removes the asset from its financial position.

However, IFRS defines a more fundamental approach to also cover the 5% large, difficult to understand but material transactions.

An entity that derecognises a financial asset in its entirety includes the difference between the carrying amount of the asset and the consideration received (including any cumulative gain or loss that had been recognised directly in equity) in the income statement. An entity that derecognises only a part of a larger financial asset allocates the previous carrying amount of the financial asset between the part that continues to be recognised and the part that is derecognised based on relative fair values at the date of transfer. The difference between the carrying amount allocated to the part derecognised (including any cumulative gain or loss relating to the part derecognised that had previously been recognised in equity) and the consideration received is included in the gain or loss on derecognition.

The contract (or agreement or habit) on which the derecognition is based may also result in new assets acquired and/or new liabilities assumed. Read the contract!

Helpful hint

It may be difficult to determine the fair values of the parts of a larger asset that are derecognised and continue to be recognised. Where there are no available market prices, the best estimate of the fair value of the part that continues to be recognised is the difference between the fair value of the larger financial asset as a whole and the consideration received from the transferee for the part of the asset that is derecognised.

Liabilities

In general, an entity derecognises a financial liability by extinguishment (completely or partly)  by:

  • discharging the liability (completely or partly) by paying the creditor, normally with cash, but also with other financial assets, goods or services (barter trade), or
  • obtaining (complete or in part) legal release from the liability either by the creditor (through negotiation) or by process of law (legal sentence by an independent judge) – although in many cases a creditor has some kind of preferential right or common advantage.

The contract (or agreement or habit) on which the derecognition is based may also result in new assets acquired and/or new liabilities assumed. Read the contract!

Full derecognition with recognition of new assets or liabilities retained

When an entity has neither transferred nor retained substantially all the risks and rewards but has transferred control, it derecognises the financial asset and recognises separately as assets or liabilities any rights and obligations created or retained in the transfer. For example, if an entity sells an asset that is traded in an active market but retains a call option to buy back that asset at a fixed price, the transferor derecognises the asset and recognises the call option.


Full derecognition is a result of following the decisions in this diagram:

* With recognition of any new assets or liabilities

Other accounting results links:

See also: https://www.ifrs.org


Full derecognition with recognition of new assets or liabilities

Full derecognition with recognition of new assets or liabilities

Full derecognition with recognition of new assets or liabilities Full derecognition with recognition of new assets or liabilities Full derecognition with recognition of new assets or liabilities

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