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IFRS 7Case studies (Step 3 of 5)

Case study

Step 3 of 5
Practical caseIFRS 7 · IFRS 9L3 · Advanced

Offsetting, income and expense, reclassification and transfers of financial assets: disclosures to prepare

6 documents12 tasks≈ 105 min
0 / 15 items completed
Standards
IFRS 7 — Financial Instruments: DisclosuresIFRS 9 — Financial Instruments
Assistance levelNo help · reduced assistance
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: shown

Case brief

Situation

Corvane SA (fictitious entity) has derivatives with Delta Bank, income from financial instruments, a reclassification of loans and two transfers of receivables. For the closing date of 31 December 20X6, you prepare the disclosures on offsetting, income and expense, reclassification and transfers.

Your assignment

Compute the net amount presented for the derivatives with Delta Bank, then the net amount after the related amounts not set off; say what the offsetting table must show; present the income and gains of the year by nature; say which standard decides on the reclassification and what the note explains; for the first transfer, compute the net position of the fair values; for the second, identify the continuing involvement and the information that describes it; record the cash received on the first transfer and state its effect; 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.

Documents

File documents

6 documents: open each one to read it.

Document 1Memo

Company profile and case conventions

Corvane SA (fictitious entity) closes its accounts on 31 December 20X6; its functional currency is the euro. Case conventions: amounts in EUR; the conclusions on derecognition and on reclassification come from IFRS 9 and are case data; the net position of the fair values is required when recourse is limited to the transferred assets (IFRS 7, para. 42D); case convention (pedagogical assumption, not attributed to IFRS 7): the reclassification note follows the presentation retained by the case.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Gross amount of the assets recognised€900,000.00
Amount set off in the statement of financial position€600,000.00
Related instruments not set off€120,000.00
Cash collateral received€50,000.00
Interest income at amortised cost€84,000.00
Net gain on derivatives€12,000.00
Loans reclassified€400,000.00
Carrying amount of the receivables transferred€500,000.00
Fair value of the receivables transferred€480,000.00
Carrying amount of the associated liability€450,000.00
Fair value of the associated liability€440,000.00
Receivables transferred and derecognised€300,000.00
Maximum exposure to loss€30,000.00
Fair value of the guarantee€4,000.00
Subscription invoice€5,600.00

Sorting the information

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.

To sort6

  • Company profile and case conventions

  • Derivatives and master agreement with Delta Bank

  • Income from financial instruments and reclassification

  • First transfer of receivables (with recourse)

  • Second transfer of receivables (derecognised)

  • Subscription invoice

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      12 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.

      1. Task 1Calculation

        Compute the net amount presented for the derivatives with Delta Bank.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the net amount presented for the derivatives with Delta Bank.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      2. Task 2Calculation

        Compute the net amount after the related instruments and the cash collateral.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the net amount after the related instruments and the cash collateral.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      3. Task 3Analysis

        What must the offsetting table show?

      4. Task 4Analysis

        Present the income and gains of the year by nature: what total?

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Present the income and gains of the year by nature: what total?

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      5. Task 5Analysis

        Which standard decides on the reclassification and what does the note of the case explain?

      6. Task 6Professional judgement

        First transfer: does the entity have a continuing involvement to disclose for derecognised assets?

      7. Task 7Calculation

        First transfer: compute the net position of the fair values.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        First transfer: compute the net position of the fair values.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      8. Task 8Professional judgement

        Second transfer: is there a continuing involvement, and which datum describes it?

      9. Task 9Analysis

        How to present the disclosures on the two transfers?

      10. Task 10Journal entries

        Record the cash received on the first transfer.

        Calculator

        Click in an answer field to be able to insert the result.

        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.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      11. Task 11Effects on the financial statements

        What is the effect of the entry on the financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      12. Task 12Conclusion

        Write the conclusion.

      Workspace

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 15).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IFRS 7 §42B
      • IFRS 7 §42C