Securitized Account Receivable Scenarios

CFA Level II
#1

Ok I have spent 3 hours again on this and I am going insane so can someone look at my understanding and tell me if this is right?

Say you have a company with AR of 100, now you sell it, we only consider sell it to SPE, the three cases where a extremely simplified BS look like this under the three case:

Original

Cash 100,AR 100 Total Asset 200

Total Liability 50 Shareholder Equity 150 Total L and E 200

Sell the receivable to SPE-Consolidate

Cash 200 AR 100 Total Asset 300

Total Liability 150 Shareholder Equity 150 Total L and E 300

Sell the receivable to SPE but NOT consolidate

Cash 200 AR 0 Total Asset 200

Total Liability 50 Shareholder Equity 150 Total L and E 200

Is this right? What are the occasion where you sold not consolidate and analyst add this back, is that where in the last scenario analyst believe you still have AR liability so you have

Cash 200 AR 100 Total Asset 300

Total Liability 150 Shareholder Equity 150 Total L and E 300?

#2

pump

#3

You are on the right track. Normally IFRS requires to consolidate such entities to provide assets 300 and liabilities 300 (the emphasis is not so much on assets but rather to show that the company has more liabilities now, which is important for credit analysis). If a company fails to consolidate (say it prepares according to Vanuatu GAAP) the analyst will correct them to make it comparable to other IFRS compliant companies. The whole issue is to make financial statements comparable and transparent.