This case illustrates the application of the principle for derecognition of financial assets
Facts
During the reporting period, Entity A has sold various financial assets:
(a) Entity A sells a financial asset for $10,000. There are no strings attached to the sale, and no other rights or obligations are retained by Entity A.
(b) Entity A sells an investment in shares for $10,000 but retains a call option to repurchase the shares at any time at a price equal to their current fair value on the repurchase date.
(c) Entity A sells a portfolio of short term account receivables for $100,000 and promises to pay up to $3,000 to compensate the buyer if and when any defaults occur. Expected credit losses are significantly less than $3,000, and there are no other significant risks.
(d) Entity A sells a portfolio of receivables for $10,000 but retains the right to service the receivables for a fixed fee (i.e., to collect payments on the receivables and pass them on to the buyer of the receivables). The servicing arrangement meets the pass through conditions.
(e) Entity A sells an investment in shares for $10,000 and simultaneously enters into a total return swap with the buyer under which the buyer will return any increases in value to Entity A and Entity A will pay the buyer interest plus compensation for any decreases in the value of the investment.
(f) Entity A sells a portfolio of receivables for $100,000 and promises to pay up to $3,000 to compensate the buyer if and when any defaults occur. Expected credit losses significantly exceed $3,000.
Required
Help Entity A by evaluating the extent to which derecognition is appropriate in each of the above cases.