Accounting for Factoring of Receivables in Bill Discounting Agreements as Per Ind AS 109
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- Last Updated on 11 June, 2024
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X Limited (hereinafter referred to as “the company”) is engaged in supply of electricity. The company has bulk power purchasers but these purchasers are often seen in making delay in clearing the payment. Thus, to safeguard themselves from accumulation of dues and to maintain liquidity, the company enters into Bill discounting agreements with scheduled commercial banks.
However, under these Bill discounting agreements, the bank is entitled to recover the amount including any charges from the company in case of default by debtors. Furthermore, it is important to note that, in case of debtor’s default the company also obtains right to recover the amount from debtors.
In respect of above transaction the company is of opinion that the condition for derecognition of financial asset as prescribed under Ind AS 109 is satisfied and hence, debtors should be derecognized once the cash has been received from bank. However, the matter when brought into the knowledge of Expert Advisory Committee (EAC), they had different opinion. Thus, to understand the correct accounting of factoring of debtors under Ind AS 109 and EAC opinion on the same
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