Question

Alpha Inc. has receivables from unrelated parties with a face value of $5,000. It transfers these receivables to bank for $4,500, without recourse. It will continue to collect the receivables, depositing them in a non-interest-bearing bank account with the cash flows remitted to the bank at the end of each month. It is not allowed to sell or pledge the receivables to anyone else and is under no obligation to repurchase the receivables from bank. Which of the following is the appropriate treatment for these Accounts receivables?

A) It should show these receivables in its Balance Sheet.
B) It should amortize these receivables.
C) It should derecognize these receivables.
D) It should derecognize these receivables if it retains the interest earned on these.

Answer 1

The correct option is C) It should derecognize these receivables

Step-by-step explanation:

Based on the information given the right and appropriate treatment of the ACCOUNT RECEIVABLES is to derecognized the receivable reason been that Alpha Inc does not have the right to either sell or pledge the receivables neither can he repurchased the receivable from the financial institution which is the bank despite the fact that the cash flows amount is been remitted to the bank at the end of every month.