Cases
Practical case
Transvia Groupe SA (fictitious entity) closes its books on 31 December 20X6. In 20X6 it carried out four transactions on financial assets (sale of loans without recourse, sale of receivables with recourse, arrangement to pass collections on, sale with a partial guarantee) and two transactions on liabilities (repurchase of a bond issue, renegotiation of a bank loan). You determine, transaction by transaction, what leaves the balance sheet and with what result.
Your assignment
For each transfer, walk through the decision tree and conclude; compute the gain on transfer 1; analyse the repurchase; for loan Q, compute the present values, the difference, the threshold and the relative difference of the 10 % test, conclude on whether it is substantial and then compute the extinguishment gains; record the three entries requested, present their effect on the financial statements and conclude. One document is not useful.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Advanced level: no help, the work is grouped by kind.
8 documents: open each one to read it.
Document 1Memo
Transvia Groupe SA (fictitious entity) closes its books on 31 December 20X6. Case conventions: amounts in EUR, present values rounded to the cent; the original effective interest rate of a liability is given; differences are expressed as percentages; the fair value of a new liability is that of a valuation report; the entries are illustrative.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Conversion factor to a percentage (100) | 100% | |
| Carrying amount of the portfolio sold (transfer 1) | €1,000,000.00 | |
| Cash received (transfer 1) | €1,036,000.00 | |
| Carrying amount of the bond issue repurchased | €2,000,000.00 | |
| Cash paid for the repurchase | €1,950,000.00 | |
| Carrying amount of loan Q before renegotiation | €1,000,000.00 | |
| Remaining cash flow under the original terms | €1,123,600.00 | |
| Original effective interest rate of loan Q | 6% | |
| Number of periods of the original cash flow | 2 units | |
| Cash flow under the new terms | €1,450,000.00 | |
| Number of periods of the cash flow under the new terms | 4 units | |
| Net fee paid to the bank | €20,000.00 | |
| Fair value of the new liability | €925,000.00 | |
| Percentage of the quantitative test of the standard (test datum) | 10% | |
| Factoring commission in the tariff | 0.6% |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Group profile and case conventions
Transfer 1: customer loan portfolio, without recourse
Transfer 2: trade receivables sold to a factor with full recourse
Arrangement 3: collections passed to investors
Transfer 4: bonds sold to a fund with a partial guarantee
Repurchase of a bond issue
Renegotiation of bank loan Q
Factor's tariff brochure
17 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
Transfer 1: follow the decision tree (expiry, transfer, risks and rewards) and conclude on derecognition.
Task 2Calculation
Compute the derecognition gain on transfer 1.
Part 1 · Calculation
Compute the derecognition gain on transfer 1.
Task 3Analysis
Transfer 2: are the receivables sold with full recourse derecognised?
Task 4Analysis
Arrangement 3: are the conditions of a pass-through arrangement met and is there a transfer?
Task 5Analysis
Transfer 4: substantially all risks and rewards are neither transferred nor retained; examine control and conclude.
Task 6Analysis
Does the repurchase of the bond issue extinguish the liability?
Task 7Calculation
Compute the present values of the original cash flow and of the cash flow under the new terms of loan Q at the original effective interest rate.
Part 1 · Calculation
Compute the present values of the original cash flow and of the cash flow under the new terms of loan Q at the original effective interest rate.
Result: Present value of the cash flow under the new terms (4 periods at 6 %)
Task 8Calculation
Compute the difference in present values, net fee included.
Part 1 · Calculation
Compute the difference in present values, net fee included.
Task 9Calculation
Compute the 10 % threshold of the original present value.
Part 1 · Calculation
Compute the 10 % threshold of the original present value.
Task 10Calculation
Compute the relative difference as a percentage of the original present value.
Part 1 · Calculation
Compute the relative difference as a percentage of the original present value.
Task 11Analysis
Is the modification of loan Q substantial according to the quantitative test? What remains for judgment?
Task 12Calculation
Compute the extinguishment gain on the repurchase and on the substantial modification.
Part 1 · Calculation
Compute the extinguishment gain on the repurchase and on the substantial modification.
Result: Gain on the substantial modification of loan Q
Task 13Journal entries
Record the derecognition of the loan portfolio (transfer 1).
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Task 14Journal entries
Record the repurchase of the bond issue.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Task 15Journal entries
Record the substantial modification of loan Q.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Line 4
Task 16Effects on the financial statements
What is the cumulative effect of the three entries on the financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 17Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 19).
Document this file
These working papers use the data and results of this case.
Normative references