IFRS 9 · Workpapers (Step 4 of 5)
Workpaper assignment
- Course
- Exercises
- Case studies
- Workpapers
- Exams
Derecognition and modification: decision tree for a transferred asset, extinguishment of a liability and the 10 % test on a modification: Arrangement 3
Transfer of receivables and refinancing: derecognition decision tree, extinguishment of a debt and 10 % test on a modification
Section 1 of 7
Objective
Section brief
- What to document
- The engagement, its scope and the working mode chosen.
- Why
- A workpaper answers one precise question: framing it avoids off-topic work.
- How
- Read the objective and the assignment, then choose the mode (guided, semi-guided, professional).
- Expected result
- You know which question the workpaper must settle, and for which reporting date.
- Your role
- Preparer of the IFRS 9 workpaper
- Level
- Advanced
- Estimated time
- ≈ 75 min
- Progress
- 0 / 3 steps done (review excluded)
Context
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.
Assignment
Derecognition tree, extinguishment and the 10 % test
Purpose 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.
Questions of the file covered by this workpaper
- 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.
Documents in the file
Open the documents to pick out the relevant information.