No derecognition

Assets

Together with full derecognition, this is the clearest type of transfer (all transfer possibilities, see below derecognition diagram). But keep in mind, 95% of transfers result in full recognition and are simple, the entity that has recorded a financial asset receives cash and removes the asset from its financial position. For a full decision tree and extensive explanations to the derecognition of financial assets see: Derecognition of financial assets.

However, IFRS defines a more fundamental approach to also cover the 5% large, difficult to understand but material transactions. In this case (see below derecognition diagram) there is no derecognition and the assets and/or liabilities remain on (or in) the balance sheet. However, there has been a transaction and this transaction gives rise to the following points of accounting consideration under IFRS:

  • A transaction is accounted for as a collateralised borrowing if the transfer does not satisfy the conditions for derecognition. The entity recognises a financial liability for the consideration received for the transferred asset.
  • If the transferee has the right to sell or repledge the asset, it is presented separately in the balance sheet (for example, as a loaned asset, pledged security or repurchased receivable). In subsequent periods, the entity recognises income relating to the transferred assets and any expense incurred on the financial liability.
  • Where a derivative forms part of the transaction and precludes the asset from being derecognised, the derivative is not accounted for separately, as this would result in the derivative being accounted for twice.

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

Liabilities

Like with full derecognition, 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 (infrequently) also result in new assets acquired and/or new liabilities assumed. Read the contract!

Accounting treatment

If there is a transfer, the possible accounting results are as follows:

* With recognition of any new assets or liabilities

Other accounting results links:

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

No derecognition No derecognition No derecognition No derecognition No derecognition

General model of measurement of insurance contracts

No derecognition

No derecognition

 

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