In CFAI EOC17 of the Integration of Financial Statement Analysis Techniques, why would both Asset and Liabilities increase by $267.5m if the Receivables were kept on the books instead of sold to an SPV? As I understand, a sale of Receivables to an SPV, results in Receivables being transformed into Cash, I don’t understand why Liabilities would be affected. Thanks for your advise on the question.
For the basic reason that it needs to balance out the balance sheet, so if assets increase the liabilities increase.
But I do think the question is incredibly unclear and requires you to assume that the receivables are completely off b/s and not to make any assumptions around sales and cash raised in securitizing the receivables. It wants you to just add them back to the b/s, without much context. Hopefully the test is clearer…
In the reading, a BB shows effect on liabilities but because the company borrows cash and uses the receivables as collateral, so effect on Liabilities is understandable; but in EOC17 this is not the case. Thanks for your point of view, I also hope on exam day there won’t be any ambiguity.