Accounting Treatment of Auctioned Collateral Assets Under Ind AS 105 and Ind AS 109

Collateral means the assets pledged by borrowers to secure a loan, providing assurance to lenders that they can recover their funds in case of default. Though such default does not give direct possession to the lender but it empowers them to initiate the auction process for actual/physical repossession of such assets.

However, the customer still has the right to repay the loan before the final sale of the property and take back the possession. Now, the confusion arises as to whether the recording of these collateral assets in books of lender as “Non-current Assets held for sale” correct or not, as the buyer still has the right to reacquire the collateral from the lender.

Furthermore, lender might also participate in such auction and retain the repossessed assets with the intention to sell at a later period of time. In this case, whether the lender should classify such repossessed assets as “financial assets” under Ind AS 109 or “Assets held for sale” under Ind AS 105.

In order to ensure the accuracy of financial reporting the lender has sought the opinion from the Expert Advisory Committee on the classification of collateral asset held with the intention of sale as “financial assets” or “asset held for sale”.

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