When does an entity derecognise a financial asset or financial liability?

Expert Solution

Derecognisation of Financial Assets:

Derecognition of financial liability:

Derecognition is the removal of a previously recognised financial asset from an entity’s statement of financial position. In general, IFRS 9 criteria for derecognition of a financial asset aim to answer the question whether an asset has been effectively ‘sold’ and should be derecognised or whether an entity obtained a kind of financing against this asset and simply an additional financial liability should be recognised.

derecognises a financial liability (or a part of a financial liability) is when it is extinguished—i.e. when the obligation specified in the contract is discharged, cancelled or expires (IFRS 9.3.3.1).

A financial liability (or part of it) is extinguished when the debtor either (IFRS 9 B3.3.1):

discharges the liability (or part of it) by paying the creditor, normally with cash, other financial assets, goods or services; or
is legally released from primary responsibility for the liability (or part of it) either by process of law or by the creditor.

ekkarill92 answered 1 year ago

Domingo Entity entered into a contract to exchange a liability. However, this particular liability does not...

Domingo Entity entered into a contract to exchange a liability. However, this particular liability does not have a quoted price in Domingo’s principle market. Sabado Entity holds an asset similar to the liability to be exchanged at a price of $45,000. Domingo decided that their finance department could incorporate a complex valuation model using estimates that would generate a more accurate fair value of $60,000. What is the fair value of the liability? Explain.

When an entity disposes its asset Gains or losses indicate whether the entity got a good...

When an entity disposes its asset Gains or losses indicate whether the entity got a good or bad deal on the sale. The entity can achieve immediate income benefits that give rise to the possibility that such sales are timed to achieve income goals. A gain on the disposal of a depreciated asset implies that depreciation expense was too low in prior periods. Gains and losses from such sales are typically reported in the operating section of the income statement

"Consolidated Financial Statements – Intra-Entity Asset Transactions" The consolidation process required for the intra-entity transfer of...

"Consolidated Financial Statements – Intra-Entity Asset Transactions" The consolidation process required for the intra-entity transfer of depreciable assets is different from the requirements for inventory and land. Analyze the current consolidation process for intra-entity transfer of depreciable assets and suggest at least one (1) improvement to the process. Provide an example to support your recommendation. Assume that company P (parent) uses the equity method to account for its investment in company S (subsidiary). Company P purchases inventory items from...

Financial institutions use derivatives instruments to hedge their asset–liability risk exposures. The financial institutions` goal is...

Financial institutions use derivatives instruments to hedge their asset–liability risk exposures. The financial institutions` goal is to reduce the value of their net worth that is at risk due to adverse events. What are the reasons why a financial institution may choose to hedge its portfolio selectively? Substantiate your response with examples.

Compare the sexual harassment liability of a business entity that is a sole proprietorship with an...

Compare the sexual harassment liability of a business entity that is a sole proprietorship with an entity that is a corporation.

Is it true that for an asset to be recognised by a reporting entity it needs...

Is it true that for an asset to be recognised by a reporting entity it needs to be owned? Give an example to support your answer.

Asset Type Asset Amount Liability Liability Amount Reserves Checkable Deposits Loans Bank Capital Assume the government...

Asset Type Asset Amount Liability Liability Amount Reserves Checkable Deposits Loans Bank Capital Assume the government of Smithville uses measures of monetary aggregates similar to those used by the United States. The central bank of Smithville imposes a required reserve ratio of 20 percent. For additional information, refer to the figures below: Bank Deposits held at the central bank = $400 million Currency and coin held by the public = $500 million Currency and coin in bank vaults = $200...

When does the lessee incorporate residual values when calculating the present value of the lease liability?...

When does the lessee incorporate residual values when calculating the present value of the lease liability? What dollar amounts should they use?

Is a high school building an asset or is it a liability? If it is neither,...

Is a high school building an asset or is it a liability? If it is neither, how should the cost be recorded? How is a high school reported in fund financial statements? How is the same high school reported in government-wide financial statements? Is the current method we use for government accounting the right approach to the case? What is a different approach other than the current method we can use for government accounting?

Describe the basic principles of the asset-liability method

Question