Derecognition of whole of financial asset in its entirety
At 1 October 2013 an entity has an available-for-sale financial asset carried at €1,400 in respect of which a cumulative gain of €200 has been recognised in equity. At that date, the asset is unconditionally sold to a third party in exchange for cash of €2,500 and a loan note issued to the third party. The loan note bears a fixed rate interest below current market rates and is repayable at €1,150 but is considered to have a fair value of €1,100. The following accounting entries are made by the entity to record the disposal:
|
€ |
€ |
|
|
Cash |
2,500 |
|
|
Equity (‘recycling’ of cumulative gain on asset) |
200 |
|
|
Gain on disposal |
200 |
|
|
Asset |
1,400 |
|
|
Loan note |
1,100 |
Thereafter the loan note will be accreted up to its repayable amount of €1,150 over its expected life using the effective interest method (see Chapter 49 at 5).
If the asset had been of a type eligible for accounting using the amortised cost method, and had been so accounted for, and had a carrying amount of (say) €1,300 at the date of the transfer, the accounting entry would have been:
|
€ |
€ |
|
|
Cash |
2,500 |
|
|
Profit on disposal |
100 |
|
|
Asset |
1,300 |
|
|
Loan note |
1,100 |