Sale of Financial Assets, ASC 860

Accounting for Servicing of Financial Assets
SFAS 166 amended SFAS 140 in June 2009
SFAS 156 amended SFAS 140 in March 2006
SFAS 140 replaced SFAS 125 in September 2000

SFAS 166, June 2006
“Accounting for Transfers of Financial Assets”
an amendment o FASB Statement No. 140

SFAS 156, March 2006
“Accounting for Servicing of Financial Assets”
an amendment of FASB Statement No. 140

SFAS 140, September 2000
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”
a replacement of FASB Statement No. 125

SFAS 125, June 1996
” Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”

Amendments to SFAS 140 by SFAS 166 in June 2009
1. The concept of Qualifying Special Purpose Entities (QSPE) was removed
–> Paragraphs 34 – 46 were deleted.

2. Financial components approach was modified

The application of sale accounting is limited to (A), (B), (C)
(A) transfer of an entire financial asset
(B) transfer of a group of entire financial assets
(C) transfer of a participating interest in an entire financial asset

Paragraph 8B of SFAS 140 defines the “participating interest”

3. The conditions to determine whether the control was surrendered
–> were amended for clarification
–> Paragraph 9 of SFAS 140

4. Additional disclosures
–> Paragraphs 16B – 16D were added

 

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Subsequent Events, ASC 855

Subsequent Events
Statement of Financial Accounting Standards No. 165, May 2009
“Subsequent Events”

Events occurred after (a), before (b)
(a) balance sheet date
(b) date of financial statements are issued: public entities
date of financial statements become available to be issued: nonpublic entities

Financial statements are issued
–> widely distributed for general use

Available to be issued
–> all necessary approvals were obtained to be issued

Two types of subsequent events
Type 1: recognized subsequent events
Type 2: nonrecognized subsequent events

Recognized subsequent events
–> provide evidence about conditions existed at the balance sheet date
Nonrecognized subsequent events
–> provide evidence about conditions that did not exist at the balance sheet date

Recognition
The effects of recognized subsequent events
–> recognized in the financial statements
The effects of nonrecognized subsequent events
–> not recognized in the financial statements

Disclosures
Two dates are disclosed
date 1: up to this date, subsequent events have been evaluated
date 2: on this date, financial statements are issued or available to be issued

Nature and the extent of its financial effects are disclosed
for the following events:
–> nonrecognized subsequent events
–> that should be disclosed to avoid misleading information

 

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Nonmonetary Transactions, ASC 845

Nonmonetary Transactions
APB Opinion 29, May 1973
“Accounting for Nonmonetary Transactions”

SFAS 153, December 2004
“Exchanges of Nonmonetary Assets
an amendment of APB Opinion No. 29”

Basic Principle
(A) Fair value of nonmonetary asset “received”
(B) Fair value of nonmonetary asset “surrendered”
(C) Book value of nonmonetary asset “surrendered”

1. Exchange of Nonmonetary Assets
–> Cost of nonmonetary asset received is (B)
–> Recognize gain or loss on the exchange

2. If (A) is more evident than (B)
–> use (A) as the cost of the asset acquired

Cases of Nonreciprocal Transfers
1. When an asset is transferred, in a nonreciprocal transfer
–> Transfer is recorded at (B)
–> Recognize gain or loss on the exchange

2. When an asset is received, in a nonreciprocal transfer
–> There is no asset surrendered
–> Cost of nonmonetary asset received is (A)

Basic Principles Modified
If the transaction lacks “commercial substance”
–> Cost of nonmonetary asset received is (C)
–> Gain or loss on the exchange is not recognized

Commercial Substance
1. The exchange has “commercial substance”
–> if there is a significant change in future cash flows
–> after the exchange

2. Significant change in future cash flows

(1) Significant change in the “configuration” of cash flows
–> configuration: amount, timing, risk

(2) Entity-specific values of assets received and surrendered
–> are significantly different

Boot: Monetary Consideration
If the amount of “monetary consideration” included is
–> 25% or more of the fair value of exchange
–> then, the exchange is considered as a “monetary exchange”

If the amount of “monetary consideration” < 25% of fair value of exchange
1. The party that pays “monetary consideration”
–> No gain is recognized

2. The party that receives “monetary consideration”
–> Recognized gain = total gain x ratio
–> ratio = (1) / (2)
–> (1) = amount of monetary consideration
–> (2) = value of total consideration received

Recognition of Loss
“Loss on the exchange”
–> is recognized in full amount

 

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