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IFRS 9Workpapers (Step 4 of 5)

Workpaper template

Step 4 of 5
WorkpaperIFRS 9 — Financial InstrumentsL2 · L3 · L4

Derecognition and modification: decision tree for a transferred asset, extinguishment of a liability and the 10 % test on a modification

9 missions9 sections to document75 min
Prepared by
AI-assisted draft
Reviewed by
Not reviewed — human review required
Status
Published

Objective of the workpaper

Describe the transfer or renegotiation, walk through the decision tree (expiry of the rights, transfer, risks and rewards, control), document the judgments, compute the derecognition gain or loss and, for a modified liability, the 10 % test (present values at the original effective interest rate, net fees included), then prepare the entries. The assessment of "substantially all" and of control remains a judgment with no numerical threshold; present values are case calculations.

9 sections · 43 blocks · 8 calculations · 4 entries

  • IFRS 9 §3.2.3
  • IFRS 9 §3.2.4
  • IFRS 9 §3.2.6
  • IFRS 9 §3.2.9
  • IFRS 9 §3.3.1
  • IFRS 9 §3.3.2
  • IFRS 9 §3.3.3
  • IFRS 9 §B3.3.6

Work this workpaper as a mission

Each case that uses this template opens in the mission workspace: data, analysis, calculation, entries, conclusion and review, with your progress saved.

9 instances from the cases: the calculations and entries below are run by the calculation engine.

File and entity
Transfer of receivables and refinancing: derecognition decision tree, extinguishment of a debt and 10 % test on a modification
Case tasks documented here
  • Transfer 1: follow the decision tree (expiry, transfer, risks and rewards) and conclude on derecognition.
  • Compute the derecognition gain on transfer 1.
  • Transfer 2: are the receivables sold with full recourse derecognised?
  • Arrangement 3: are the conditions of a pass-through arrangement met and is there a transfer?
  • Transfer 4: substantially all risks and rewards are neither transferred nor retained; examine control and conclude.
  • Does the repurchase of the bond issue extinguish the liability?
  • 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.
  • Compute the difference in present values, net fee included.
  • Compute the 10 % threshold of the original present value.
  • Compute the relative difference as a percentage of the original present value.
  • Is the modification of loan Q substantial according to the quantitative test? What remains for judgment?
  • Compute the extinguishment gain on the repurchase and on the substantial modification.
  • Record the derecognition of the loan portfolio (transfer 1).
  • Record the repurchase of the bond issue.
  • Record the substantial modification of loan Q.
1

Facts and data

Inputs

  • Terms of the transfer or renegotiation: rights transferred or retained, recourse, guarantees, commitments

    Text

    TERMS_PER_CONTRACT

  • Exposure before and after the transfer to the variability in the amounts and timing of the net cash flows of the asset

    Text

    EXPOSURE_COMPARED_BEFORE_AFTER

  • Subject of the analysis

    ChoiceRequired

    Transfer of a financial asset

    Transfer of a financial asset / Extinguishment of a financial liability / Modification of a financial liability / Modification of a financial asset

  • Consideration received for the transferred asset

    Number

    1,036,000

  • Carrying amount of the transferred asset

    Number

    1,000,000

  • Cumulative OCI recycled to profit or loss (debt instrument at FVOCI)

    Number

  • Carrying amount of the extinguished liability

    Number

  • Consideration paid to extinguish the liability

    Number

  • Remaining cash flow of the original liability to discount

    Number

  • Original effective interest rate (case datum)

    Number

  • Number of periods of the original cash flow

    Number

  • Cash flow under the new terms to discount at the original rate

    Number

  • Number of periods of the cash flow under the new terms

    Number

  • Fees paid net of fees received, included in the test

    Number

  • Percentage of the quantitative test of the standard

    Number

  • Conversion factor to a percentage (100)

    Number

  • Carrying amount of the modified liability

    Number

  • Fair value of the new liability at the modification date

    Number

  • Fees paid on the substantial modification

    Number

  • Modification loss on an asset without derecognition

    Number

2

Supporting documents

Evidence

  • Documents obtained and referenced (transfer agreement, amendment, cash flow table, valuation of the new liability)

    EvidenceRequired

3

Analysis of the decision tree

Analysis

IFRS 9 §3.2.6IFRS 9 §3.3.1IFRS 9 §3.3.2IFRS 9 §B3.3.6

  • Points reviewed: derecognition and modification

    ChecklistRequired

    • First question: have the contractual rights to the cash flows expired?
    • Transfer of the rights, or obligation to pay over the collections (arrangement meeting the pass-through conditions)
    • Risks and rewards compared: exposure before and after the transfer to the variability of net cash flows, with no numerical threshold for "substantially all"
    • If neither: control assessed by the transferee's ability to sell the whole asset to an unrelated third party, unilaterally
    • Liability removed only when extinguished (obligation discharged, cancelled or expired)
    • The 10 % test: present values at the original effective interest rate, fees paid net of fees received included
    • Derecognition or extinguishment gain or loss recognised in profit or loss
4

Derecognition and 10 % test calculations

Calculations

IFRS 9 §3.3.3IFRS 9 §B3.3.6IFRS 9 §3.2.6

  • Derecognition gain or loss on the asset (consideration less carrying amount, plus recycling)

    Calculation

    36,000

    Consideration received for the transferred asset ; − Carrying amount of the transferred asset ; Cumulative OCI recycled to profit or loss (debt instrument at FVOCI)

  • Extinguishment gain or loss (carrying amount less consideration paid)

    Calculation

    0

    Carrying amount of the extinguished liability ; − Consideration paid to extinguish the liability

  • Gain or loss on the substantial modification (carrying amount less fair value of the new liability and fees)

    Calculation

    0

    Carrying amount of the modified liability ; − Fair value of the new liability at the modification date ; − Fees paid on the substantial modification

  • Present value of the original cash flow at the original effective interest rate

    Calculation

    Remaining cash flow of the original liability to discount ; Original effective interest rate (case datum) ; Number of periods of the original cash flow

  • Present value of the cash flow under the new terms at the original effective interest rate

    Calculation

    Cash flow under the new terms to discount at the original rate ; Original effective interest rate (case datum) ; Number of periods of the cash flow under the new terms

  • Difference in present values (new terms, net fees included, less original terms)

    Calculation

    0

    Present value of the cash flow under the new terms at the original effective interest rate ; Fees paid net of fees received, included in the test ; − Present value of the original cash flow at the original effective interest rate

  • Test threshold: 10 % of the present value of the original cash flows

    Calculation

    Present value of the original cash flow at the original effective interest rate ; Percentage of the quantitative test of the standard

  • Relative difference (difference / original present value, in %)

    Calculation

    Difference in present values (new terms, net fees included, less original terms) ; Conversion factor to a percentage (100) ; Present value of the original cash flow at the original effective interest rate

5

Illustrative entries

Entries

  • Entry: derecognition of a transferred asset

    Entry

    AccountDebitCredit
    Cash received1,036,000
    Financial asset at amortised cost derecognised1,000,000
    Derecognition gain36,000

  • Entry: extinguishment of a liability for less than its carrying amount

    Entry

    Debit Financial liability extinguished ← Carrying amount of the extinguished liability ; Credit Cash paid ← Consideration paid to extinguish the liability ; Credit Extinguishment gain ← Extinguishment gain or loss (carrying amount less consideration paid)

  • Entry: substantial modification of a liability

    Entry

    Debit Old financial liability (derecognised) ← Carrying amount of the modified liability ; Credit New financial liability at fair value ← Fair value of the new liability at the modification date ; Credit Fees paid ← Fees paid on the substantial modification ; Credit Extinguishment gain ← Gain or loss on the substantial modification (carrying amount less fair value of the new liability and fees)

  • Entry: modification loss on an asset without derecognition

    Entry

    Debit Modification loss in profit or loss ← Modification loss on an asset without derecognition ; Credit Financial asset at amortised cost (recalculated gross amount) ← Modification loss on an asset without derecognition

6

Judgments: risks and rewards, control, substantial modification

Judgment

IFRS 9 §3.2.6IFRS 9 §3.3.2IFRS 9 §B3.3.6

  • Risks and rewards of ownership transferred or retained

    JudgmentRequired

    Substantially all transferred

    Substantially all transferred / Substantially all retained / Neither transferred nor retained: control examined

    Professional judgment: the standard sets no numerical threshold for "substantially all" of the risks and rewards; the assessment compares the exposure before and after the transfer to the variability of the net cash flows of the asset.

  • Rationale: exposure before and after the transfer

    Text

    BANK_BEARS_CREDIT_AND_PREPAYMENT_RISK

  • Control of the transferred asset

    JudgmentRequired

    Not applicable (the control test is not reached)

    Control not retained / Control retained: continuing involvement / Not applicable (the control test is not reached)

    Professional judgment: the transferor has not retained control if the transferee can sell the whole asset to an unrelated third party, unilaterally, without additional restrictions; the assessment rests on all the facts and circumstances.

  • Rationale: the transferee's ability to sell the asset

    Text

    NOT_REACHED_RISKS_TRANSFERRED

  • Substantial nature of the modification of a liability

    JudgmentRequired

    Not applicable

    Substantial modification: extinguishment and new liability / Modification not substantial according to the quantitative test / Not applicable

    Professional judgment: a difference of at least 10 % between the present values shows substantially different terms; practice is diverse on the cash flows included in the test and other qualitative elements are for the preparer to judge.

  • Rationale: result of the test and other qualitative elements examined

    Text

    ASSET_TRANSFER

7

Effect on the financial statements

FS impact

  • Effect derived from the entries

    Table

8

Conclusion

Conclusion

  • Path through the tree, judgments, 10 % test, gain or loss and entries submitted to the reviewer

    ConclusionRequired

9

Normative references

References

  • Normative references cited in this workpaper

    References

10

Checks and financial statement impact

  • Subject of the analysis completedPass
  • Derecognition entry balancedPass
  • Extinguishment entry balancedNot evaluated
  • Modification entry balancedNot evaluated
  • Modification loss entry balancedNot evaluated
Assets
36,000
Liabilities
0
Profit or loss
36,000
OCI
0
Equity
36,000