Dear Experts,
If accounts receivables from a customer is $1000. The customer d
does not pay and court orders that assets of customer can be sold by the seller and settle against accounts receivables. What is the accounting treatment as per IFRS.
Whether assets acquired from customer is to be treated as asset held for sale and accounts receivables can be credited.
Whether on sale of assets revenue is to be recognised less cost of removal of assets.
Good morning. All aspects of this situation need to be considered attentively. The first possible situation is when the customer sells his assets to your company and then his account receivables from this sale are accounted against his liabilities to you. You account this deal as a purchase of an asset in accordance with that standard which these assets relate to (IAS 2, 16, 40 and so on) and the difference between the customer’s debt and the sum of the deal is recognized as an income or an expense of a current period. However another way of settlement can be applied. The customer gives these assets to your company without a sale. In this case you account these assets at fair value basing on intentions concerning the subsequent usage of these assets. The difference between the fair value of assets and the customer’s debt will be recognized in the same way as in the fist situation.
Dear Sir,
Thanks for your comments.
However, do you think that the following would be an appropriate accounting
IAS-16
If the assets are acquired should be treated as ‘Assets held for sale’ as current assets. No depreciation would be charged.
Assets held for sale Dr. (Total of sale + cost of removal)
Accounts Receivables Cr.
Cash Dr.
Assets held for sale Cr.
IAS -18
Revenue: the gross inflow of economic benefits (cash, receivables, other assets) arising from the ordinary operating activities of an entity (such as sales of goods, sales of services, interest, royalties, and dividends).
Accordingly, revenue cannot be recognized from sale of assets held for sale, only gain can be recognized if any.
or Assets would be treated as invetory
Inventory Dr.
Customer A/c
How the cost / fair value would be calculated to debit assets held for sale or inventory.
Hemant
The asset given to your company by the company-debtor has to be recognize initially at its fair value. The difference between the liability’s fair value and the asset’s fair value has to be recognized as a result of a current period. Then, you estimate the NRP in accordance with IFRS 5. If the NRP is lower than the fair value you have to recognize the difference in P&L.
Appropriate entries are presented below:
1. The initial recognition of the asset at fair value (for instance, the fair value is equal to $1100)
Dr Assets help for sale $1100 Cr Accounts receivalbe $1000
Cr Income $100
2. Then you compare the fair value with the NRP. For instance, the NRP is equal to $1200. In accordance with IFRS 5, an asset held for sale has to be measured at the lower of cost and estimated selling price less cost to complete and sell. In this case, the selling price is higher than the cost at which the asset has been recognized initially. Hence you continue to account this asset at $1100 until its sale.
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