ASC 860-20
Sales of Financial Assets
860 Transfers and Servicing
Source downloaded: .Record version 3ad7b9d92f76. Effective date must be checked in the source.
ASC 860-20 tells a transferor what to record once a transfer of financial assets qualifies as a sale under 860-10-40-5, and what happens if the transferor later regains control. For a sale of entire financial assets, the transferor derecognizes the assets, recognizes at fair value all assets obtained and liabilities incurred (cash, servicing assets/liabilities, beneficial interests, options, forwards, swaps), and books the gain or loss in earnings; for a participating interest, the prior carrying amount is allocated between the interest sold and the interest retained on relative fair values. If a change in law or circumstance causes the transferor to regain control, it rerecognizes the assets and related liabilities at fair value as if it purchased them, with no gain or loss on its beneficial interests.
Key points (7)
- On a sale of an entire financial asset or group, the transferor derecognizes the transferred assets, recognizes assets obtained/liabilities incurred, and recognizes gain or loss in earnings (860-20-40-1B); any amount in AOCI for an available-for-sale asset is recognized in earnings at the transfer date.
- On a sale of a participating interest, the previous carrying amount of the entire financial asset is allocated between the participating interest sold and the interest retained based on relative fair values at the transfer date; the retained interest equals the carrying amount less the amount derecognized (860-20-40-1A).
- Assets obtained and liabilities incurred by the transferor (cash, servicing assets and liabilities, beneficial interests, puts/calls including recourse obligations, forwards, swaps) are recognized (860-20-25-1) and initially measured at fair value (860-20-30-1); the transferee recognizes all assets obtained and liabilities incurred (860-20-25-3) at fair value, except PCD assets and 325-40-30-1A beneficial interests (860-20-30-2).
- Proceeds equal cash and other assets obtained (including beneficial interests and separately recognized servicing assets) less liabilities incurred, with concurrent derivatives part of the proceeds (860-20-25-4); no portion of the resulting gain or loss may be deferred (860-20-25-6).
- Retained credit risk is a separate liability only if the transferor could be required to pay more than the cash flows of the interest it obtained; otherwise it is reflected in measuring the beneficial interest (860-20-25-6; 860-20-55-24).
- If the transferor regains control, it accounts for the change as a purchase of the assets in exchange for liabilities assumed, rerecognizing them at fair value on that date (860-20-25-9 through 25-10; 860-20-30-3), with no gain or loss on its beneficial interests (860-20-25-12), no change to the servicing asset (860-20-25-10(b)), and an allowance for credit losses under Topic 326 (860-20-25-13).
- Financial assets (other than those within Subtopic 815-10) that can contractually be prepaid or settled such that the holder would not recover substantially all of its recorded investment must be measured like available-for-sale or trading debt securities and can never be held-to-maturity, however remote prepayment is (860-20-35-2; 860-20-35-5).
For students. This is the "what do I book after the sale test is passed" half of Topic 860 — the sale/secured-borrowing test itself lives in 860-10-40-5. A common misunderstanding is thinking retained recourse or credit risk lets you defer part of the gain: 860-20-25-6 expressly forbids deferring gain, requiring instead a separately recognized liability at fair value (or reflection in the beneficial interest's measurement).
sale accounting for transfersparticipating interestbeneficial interestservicing asset and liabilityproceeds and gain or loss on saleregaining control / rerecognitionremoval-of-accounts provisioncontinuing involvement disclosures
Machine-generated study aid for ASC 860-20. Check the source paragraphs below.
860-20-00Status
Source downloaded: .Record version 7355df9f94d1. Effective date must be checked in the source.
860-20-00-1
The following table identifies the changes made to this Subtopic.
860-20-05Overview and Background
Source downloaded: .Record version aa120b68f564. Effective date must be checked in the source.
860-20-05-1
This Subtopic provides guidance on the accounting for a transfer of financial assets that satisfies the conditions for sale accounting in paragraph 860-10-40-5 and the accounting if a transferor regains control of assets previously sold.
860-20-10Objectives
Source downloaded: .Record version 3a503de32a32. Effective date must be checked in the source.
860-20-15Scope and Scope Exceptions
Source downloaded: .Record version 31de706e1e4f. Effective date must be checked in the source.
Overall Guidance
860-20-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 860-10-15.
860-20-25Recognition
Source downloaded: .Record version 3e91504ff564. Effective date must be checked in the source.
860-20-25-1
Section 860-20-40 provides derecognition guidance a transferor (seller) applies upon completion of a transfer of financial assets that satisfies paragraph 860-10-40-5's conditions to be accounted for as a sale. Upon completion of such a transfer, the transferor (seller) shall also recognize any assets obtained or liabilities incurred in the sale, including, but not limited to, any of the following:
- aCash
- bServicing assets
- cServicing liabilities
- dIn a sale of an entire financial asset or a group of entire financial assets, any of the following:
- 1The transferor's beneficial interest in the transferred financial assets
- 2Put or call options held or written (for example, guarantee or recourse obligations)
- 3Forward commitments (for example, commitments to deliver additional receivables during the revolving periods of some securitizations)
- 4Swaps (for example, provisions that convert interest rates from fixed to variable).
- 1
860-20-25-2
Although a transfer of securities may not be considered to have reached completion until the settlement date, this Subtopic does not modify other generally accepted accounting principles (GAAP) that require accounting at the trade date for certain contracts to purchase or sell securities.
860-20-25-3
The transferee shall recognize all assets obtained (including any participating interest(s) obtained) and any liabilities incurred.
Assets Obtained and Liabilities Incurred as Proceeds
860-20-25-4
The proceeds from a sale of financial assets consist of the cash and any other assets obtained, including beneficial interests and separately recognized servicing assets, in the transfer less any liabilities incurred, including separately recognized servicing liabilities. Any asset obtained is part of the proceeds from the sale. Any liability incurred, even if it is related to the transferred financial assets, is a reduction of the proceeds. Any derivative financial instrument entered into concurrently with a transfer of financial assets is either an asset obtained or a liability incurred and part of the proceeds received in the transfer.
Distinguishing New Interests Obtained from Part of a Beneficial Interest Obtained
860-20-25-6
In determining whether credit risk is a separate liability or part of a beneficial interest that has been obtained by the transferor, the transferor should focus on the source of cash flows in the event of a claim by the transferee. If the transferee can only look to cash flows from the underlying financial assets, the transferor has obtained a portion of the credit risk only through the interest it obtained and a separate obligation shall not be recognized. Credit losses from the underlying assets would affect the measurement of the interest that the transferor obtained. In contrast, if the transferor could be obligated for more than the cash flows provided by the interest it obtained and, therefore, could be required to reimburse the transferee for credit-related losses on the underlying assets, the transferor shall record a separate liability. It is not appropriate for the transferor to defer any portion of a resulting gain or loss (or to eliminate gain on sale accounting, as it is sometimes described in practice).
Regaining Control of Financial Assets Sold
860-20-25-8
Paragraph 860-10-40-41 explains that a change in law or other circumstance may result in a transferred portion of an entire financial asset no longer meeting the conditions of a participating interest (see paragraph 860-10-40-6A) or the transferor's regaining control of transferred financial assets after a transfer that was previously accounted for as a sale, because one or more of the conditions in paragraph 860-10-40-5 are no longer met.
860-20-25-9
Such changes shall be accounted for in the same manner as a purchase of the transferred financial assets from the former transferee(s) in exchange for liabilities assumed unless they arise solely from either:
- aConsolidation of an entity involved in the transfer at a subsequent date (see paragraph 860-20-25-10)
- bA change in market prices (for example, an increase in price that moves into the money a freestanding call option on a non-readily-obtainable, transferred financial asset that was originally sufficiently out of the money that it was judged not to constrain the transferee).
860-20-25-10
After that change, the transferor shall do all of the following:
- aRecognize in its financial statements those transferred financial assets together with liabilities to the former transferee(s) or beneficial interest holders of the former transferee(s).
- bNot change the accounting for the servicing asset related to the previously sold financial assets. That is, even though the transferor has regained control over the previously sold assets, the cash flows from those assets will contractually be paid to the special-purpose entity, which will then distribute the proceeds to satisfy its contractual obligations (including obligations to the beneficial interest holders). Because the transferor, as servicer, is still contractually required to collect the asset's cash flows for the benefit of the special-purpose entity and otherwise service the assets, it shall continue to recognize the servicing asset and assess the asset for impairment if subsequently measured using the amortization method, as required by paragraph 860-50-35-9. Once a servicing asset is recognized it shall not be added back to the underlying asset. Even when the transferor has regained control over the underlying assets through an event that triggers a transferor to rerecognize previously transferred assets that were accounted for as having been sold, the related servicing asset shall continue to be separately recognized.
- cContinue to account for the transferor's interests in those underlying financial assets apart from any rerecognized financial assets. That is, the transferor's interests shall not be combined with and accounted for with the rerecognized financial assets. Example 10 (see paragraph 860-20-55-83) illustrates this guidance. However, a subsequent event that results in the transferor reclaiming those financial assets from the transferee, for example, the exercise of a removal-of-accounts provision or the consolidation by the transferor of the securitization entity in accordance with applicable GAAP, including the Variable Interest Entities Subsections of Subtopic 810-10, would result in a recombination of the transferor's interests with the underlying financial assets.
860-20-25-11
Whether the removal-of-accounts provision is exercised or not, the transferor shall recognize any financial assets subject to the removal-of-accounts provision if all of the following conditions are met:
- aA third party's action (such as default or cancellation) or decision not to act (expiration) occurs.
- bThe occurrence allows removal of assets to be initiated solely by the transferor.
- cThe provision provides a more-than-trivial benefit to the transferor.
860-20-25-12
Upon application of paragraph 860-20-25-10, no gain or loss shall be recognized in earnings with respect to any of the transferor's beneficial interests. A gain or loss may be recognized upon the exercise of a removal-of-accounts provision or similar contingent right with respect to the repurchased transferred financial assets that were sold if the removal-of-accounts provision or similar contingent right held by the transferor is not accounted for as a derivative instrument under Subtopic 815-10 and is not at the money, resulting in the fair value of those repurchased financial assets being greater or less than the related obligation to the transferee.
860-20-25-13
For financial assets rerecognized in accordance with paragraph 860-20-25-10, an entity shall initially recognize a financial asset at fair value. An entity shall then apply relevant guidance, including this Topic, Topic 310 on receivables, Topic 320 on investments—debt securities, Topic 321 on investments—equity securities, Topic 323 on investments—equity method and joint ventures, and Topic 325 on investments—other. In addition, an entity shall measure an allowance for credit losses in accordance with Topic 326, if applicable.
- aFor those financial assets that are not purchased financial assets with credit deterioration within the scope of Topic 326, an entity shall recognize an allowance for credit losses with a corresponding charge to credit loss expense as of the reporting date.
- bFor those financial assets that are purchased financial assets with credit deterioration (which includes beneficial interest that meets the criteria in paragraph 325-40-30-1A) within the scope of Topic 326, an entity shall recognize an allowance for credit losses in accordance with Topic 326 with a corresponding increase to the amortized cost basis of the financial asset(s) as of the recognition date.
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
326-10-65-7For financial assets rerecognized in accordance with paragraph 860-20-25-10, an entity shall initially recognize a financial asset at fair value. An entity shall then apply relevant guidance, including this Topic, Topic 310 on receivables, Topic 320 on investments—debt securities, Topic 321 on investments—equity securities, Topic 323 on investments—equity method and joint ventures, and Topic 325 on investments—other. In addition, an entity shall measure an allowance for credit losses in accordance with Topic 326, if applicable.- aFor those financial assets that are not purchased financial assets with credit deteriorationor purchased seasoned loanswithin the scope of Topic 326, an entity shall recognize an allowance for credit losses with a corresponding charge to credit loss expense as of the reporting date.
- bFor those financial assets that are purchased financial assets with credit deterioration (which includes beneficial interest that meets the criteria in paragraph 325-40-30-1A) and purchased seasoned loans within the scope of Topic 326, an entity shall recognize an allowance for credit losses in accordance with Topic 326 with a corresponding increase to the amortized cost basis of the financial asset(s) as of the recognition date.
860-20-30Initial Measurement
Source downloaded: .Record version 9461de766210. Effective date must be checked in the source.
860-20-30-1
The transferor shall initially measure at fair value any asset obtained (or liability incurred) and recognized under paragraph 860-20-25-1.
860-20-30-2
The transferee shall initially measure, at fair value, any asset or liability recognized under paragraph 860-20-25-3, unless it is a purchased financial asset with credit deterioration or is a beneficial interest that meets the criteria in paragraph 325-40-30-1A, in which case the transferee shall apply the guidance in Topic 326 on measurement of credit losses to determine the initial amortized cost basis.
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
326-10-65-7The transferee shall initially measure, at fair value, any asset or liability recognized under paragraph 860-20-25-3, unless it is a purchased financial asset with credit deterioration, a beneficial interest that meets the criteria in paragraph 325-40-30-1A, or a purchased seasoned loan, in which case the transferee shall apply the guidance in Topic 326 on measurement of credit losses to determine the initial amortized cost basis. Regaining Control of Financial Assets Sold
860-20-30-3
The transferor shall initially measure transferred financial assets and liabilities that are rerecognized under paragraph 860-20-25-10(a) as a result of regaining control of the financial assets sold at fair value on the date of the change as if the transferor purchased the transferred financial assets and assumed the liabilities on that date.
860-20-35Subsequent Measurement
Source downloaded: .Record version e575a4420b1e. Effective date must be checked in the source.
860-20-35-1
This Section is organized as follows:
- aFinancial assets subject to prepayment
- b
- cCredit enhancements
- d
- eTransaction costs.
Financial Assets Subject to Prepayment
860-20-35-2
Financial assets, except for instruments that are within the scope of Subtopic 815-10, that can contractually be prepaid or otherwise settled in such a way that the holder would not recover substantially all of its recorded investment shall be subsequently measured like investments in debt securities classified as available for sale or trading under Topic 320. Examples of such financial assets include, but are not limited to, interest-only strips, other beneficial interests, loans, or other receivables. Interest-only strips and similar interests that meet the definition of securities are included in the scope of that Topic. Therefore, all relevant provisions of that Topic (including the disclosure requirements) shall be applied. See related implementation guidance beginning in paragraph 860-20-55-33.
860-20-35-3
Interest-only strips and similar interests that are not in the form of securities are not within the scope of Topic 320 but shall be measured like investments in debt securities classified as available for sale or trading. In that circumstance, all of the measurement provisions of that Topic, as well as the provisions of Topic 326 on measurement of credit losses, shall be followed. However, other provisions of Topics 320 and 326, such as those addressing disclosures, are not required to be applied. Paragraph 320-10-15-9 explains that, for debt securities within its scope, Subtopic 325-40 provides incremental guidance on accounting for and reporting discount and credit losses.
860-20-35-4
The requirement in paragraph 860-20-35-2 does not apply to situations in which events that are not the result of contractual provisions, for example, borrower default or changes in the value of an instrument's denominated currency relative to the entity's functional currency, cause the holder not to recover substantially all of its recorded investment.
860-20-35-5
A financial asset that can be contractually prepaid or otherwise settled in such a way that the holder would not recover substantially all of its recorded investment shall not be classified as held-to-maturity even if the investor concludes that prepayment or other forms of settlement are remote. The probability of prepayment or other forms of settlement that would result in the holder's not recovering substantially all of its recorded investment is not relevant in deciding whether the provisions of paragraph 860-20-35-2 apply to those financial assets.
860-20-35-6
The guidance in this Subtopic does not specifically address the subsequent measurement of a transferor's beneficial interests that cannot be contractually prepaid or settled in such a way that the owner would not recover substantially all of its recorded investment.
Credit Enhancements
860-20-35-8
While this Subtopic does not specifically address the subsequent measurement of credit enhancements, there are some factors to consider. Factors such as how much cash the transferor will receive from, for example, a cash reserve account, and when it will receive cash inflows depend on the performance of the transferred financial assets. Entities shall regularly review those assets for impairment because of their nature. Entities shall look to other guidance for subsequent measurement including guidance for impairment based on the nature of the credit enhancement.
Beneficial Interests
860-20-35-9
Beneficial interests shall be evaluated for credit losses, including at the time paragraphs are applied. See Section 325-40-35 for guidance on credit losses applicable to beneficial interests in securitized financial assets.
Transaction Costs
860-20-35-10
Transaction costs relating to a sale of the receivables may be recognized over the initial and reinvestment periods in a rational and systematic manner unless the transaction results in a loss. Transaction costs for a past sale are not an asset and thus are part of the gain or loss on sale. In a credit card securitization, however, some of the transaction costs incurred at the outset relate to the future sales that are to occur during the revolving period, and thus can qualify as an asset.
860-20-40Derecognition
Source downloaded: .Record version 924e7935f594. Effective date must be checked in the source.
Sale of a Participating Interest
860-20-40-1A
Upon completion of a transfer of a participating interest that satisfies the conditions in paragraph 860-10-40-5 to be accounted for as a sale, the transferor(seller) shall:
- aAllocate the previous carrying amount of the entire financial asset between both of the following on the basis of their relative fair values at the date of the transfer:
- 1The participating interest(s) sold
- 2The participating interest that continues to be held by the transferor.
- 1
- bDerecognize the participating interest(s) sold
- cApply the guidance in paragraphs 860-20-25-1 and 860-20-30-1 on recognition and measurement of assets obtained and liabilities incurred in the sale
- dRecognize in earnings any gain or loss on the sale
- eReport any participating interest(s) that continue to be held by the transferor as the difference between the following amountsmeasured at the date of the transfer:
- 1The previous carrying amount of the entire financial asset
- 2The amount derecognized.
- 1
Sale of an Entire Financial Asset or Group of Entire Financial Assets
860-20-40-1B
Upon completion of a transfer of an entire financial asset or a group of entire financial assets that satisfies the conditions in paragraph 860-10-40-5 to be accounted for as a sale, the transferor (seller) shall:
- aDerecognize the transferred financial assets
- bApply the guidance in paragraphs 860-20-25-1 and 860-20-30-1 on recognition and measurement of assets obtained and liabilities incurred in the sale
- cRecognize in earnings any gain or loss on the sale.
Transferor and Transferee Accounting Circumstances upon Regaining Control
860-20-40-3
The guidance beginning in paragraph 860-20-25-8 discusses the transferor's accounting upon regaining control of financial assets sold. In such circumstances, the former transferee would derecognize the transferred financial assets on that date, as if it had sold the transferred financial assets in exchange for a receivable from the transferor.
860-20-50Disclosure
Source downloaded: .Record version d350e577c5f8. Effective date must be checked in the source.
All Entities within Scope of Subtopic
860-20-50-2
Paragraphs address disclosures for securitizations, asset-backed financing arrangements, and similar transfers that have both of the following characteristics:
- aThe transfer is accounted for as a sale
- bThe transferor has continuing involvement with the transferred financial assets.
860-20-50-2A
If specific disclosures are required for a particular form of a transferor's continuing involvement by other Topics, the transferor shall provide the information required in paragraphs 860-20-50-3(b) through (cc) and 860-20-50-4(a) with a cross-reference to the separate notes to financial statements so a financial statement user can understand the risks retained in the transfer. The entity does not need to provide each specific disclosure required in paragraphs 860-20-50-3(d) and 860-20-50-4 if the disclosure is not required by other Topics and the objectives of paragraphs are met. For example, if the transferor's only form of continuing involvement is a derivative, the entity shall provide the disclosures required in paragraphs 860-20-50-3(b) through (cc) and 860-20-50-4(a) and the disclosures about derivatives required by applicable Topics. In addition, the entity shall evaluate whether the other disclosures in paragraphs are necessary for the entity to meet the objectives in those paragraphs.
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1If specific disclosures are required for a particular form of a transferor's continuing involvement by other Topics, the transferor shall provide the information required in paragraphs 860-20-50-3(b) through (cc) and 860-20-50-4(a) with a cross-reference to the separate notes to financial statements in interim and annual reporting periods so a financial statement user can understand the risks retained in the transfer. The entity does not need to provide each specific disclosure required in paragraphs 860-20-50-3(d) and 860-20-50-4 if the disclosure is not required by other Topics and the objectives of paragraphs are met. For example, if the transferor's only form of continuing involvement is a derivative, the entity shall provide the disclosures required in paragraphs 860-20-50-3(b) through (cc) and 860-20-50-4(a) and the disclosures about derivatives required by applicable Topics. In addition, the entity shall evaluate whether the other disclosures in paragraphs are necessary for the entity to meet the objectives in those paragraphs.860-20-50-3
For each income statement presented, the entity shall disclose all of the following:
- a
- bThe characteristics of the transfer including all of the following:
- 1A description of the transferor's continuing involvement with the transferred financial assets
- 2The nature and initial fair value of both of the following:
- iThe asset obtained as proceeds
- iiThe liabilities incurred in the transfer.
- i
- 3The gain or loss from sale of transferred financial assets.
- 1
- bbFor the initial fair value measurements in item (b)(2), the level within the fair value hierarchy in Topic 820 in which the fair value measurements fall, segregating fair value measurements using each of the following:
- 1Quoted prices in active markets for identical assets or liabilities (Level 1)
- 2Significant other observable inputs (Level 2)
- 3Significant unobservable inputs (Level 3).
- 1
- cFor the initial fair value measurements in item (b)(2), the key inputs and assumptions used in measuring the fair value of assets obtained and liabilities incurred as a result of the sale that relate to the transferor's continuing involvement, including quantitative information about all of the following:
- 1Discount rates.
- 2Expected prepayments including the expected weighted-average life of prepayable financial assets. The weighted-average life of prepayable assets in periods (for example, months or years) can be calculated by multiplying the principal collections expected in each future period by the number of periods until that future period, summing those products, and dividing the sum by the initial principal balance.
- 3Anticipated credit losses, including expected static pool losses.
If an entity has aggregated transfers during a period in accordance with the guidance beginning in paragraph 860-10-50-5, it may disclose the range of assumptions. - 1
- ccFor the initial fair value measurements in item (b)(2), the valuation technique(s) used to measure fair value.
- dCash flows between a transferor and transferee, including all of the following:
- 1Proceeds from new transfers
- 2Proceeds from collections reinvested in revolving-period transfers
- 3Purchases of previously transferred financial assets
- 4Servicing fees
- 5Cash flows received from a transferor's interests.
- 1
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1For each interim and annual income statement presented, the entity shall disclose all of the following: - a
- bThe characteristics of the transfer including all of the following:
- 1A description of the transferor's continuing involvement with the transferred financial assets
- 2The nature and initial fair value of both of the following:
- iThe asset obtained as proceeds
- iiThe liabilities incurred in the transfer.
- i
- 3The gain or loss from sale of transferred financial assets.
- 1
- bbFor the initial fair value measurements in item (b)(2), the level within the fair value hierarchy in Topic 820 in which the fair value measurements fall, segregating fair value measurements using each of the following:
- 1Quoted prices in active markets for identical assets or liabilities (Level 1)
- 2Significant other observable inputs (Level 2)
- 3Significant unobservable inputs (Level 3).
- 1
- cFor the initial fair value measurements in item (b)(2), the key inputs and assumptions used in measuring the fair value of assets obtained and liabilities incurred as a result of the sale that relate to the transferor's continuing involvement, including quantitative information about all of the following:
- 1Discount rates.
- 2Expected prepayments including the expected weighted-average life of prepayable financial assets. The weighted-average life of prepayable assets in periods (for example, months or years) can be calculated by multiplying the principal collections expected in each future period by the number of periods until that future period, summing those products, and dividing the sum by the initial principal balance.
- 3Anticipated credit losses, including expected static pool losses.
If an entity has aggregated transfers during a period in accordance with the guidance beginning in paragraph 860-10-50-5, it may disclose the range of assumptions. - 1
- ccFor the initial fair value measurements in item (b)(2), the valuation technique(s) used to measure fair value.
- dCash flows between a transferor and transferee, including all of the following:
- 1Proceeds from new transfers
- 2Proceeds from collections reinvested in revolving-period transfers
- 3Purchases of previously transferred financial assets
- 4Servicing fees
- 5Cash flows received from a transferor's interests.
- 1
860-20-50-4
For each statement of financial position presented, regardless of when the transfer occurred, an entity shall disclose all of the following:
- aQualitative and quantitative information about the transferor's continuing involvement with transferred financial assets that provides financial statement users with sufficient information to assess the reasons for the continuing involvement and the risks related to the transferred financial assets to which the transferor continues to be exposed after the transfer and the extent that the transferor's risk profile has changed as a result of the transfer (including, but not limited to, credit risk, interest rate risk, and other risks), including all of the following:
- 1The total principal amount outstanding
- 2The amount that has been derecognized
- 3The amount that continues to be recognized in the statement of financial position
- 4The terms of any arrangements that could require the transferor to provide financial support (for example, liquidity arrangements and obligations to purchase assets) to the transferee or its beneficial interest holders, including both of the following:
- iA description of any events or circumstances that could expose the transferor to loss
- iiThe amount of the maximum exposure to loss.
- i
- 5Whether the transferor has provided financial or other support during the periods presented that it was not previously contractually required to provide to the transferee or its beneficial interest holders, including—when the transferor assisted the transferee or its beneficial interest holders in obtaining support—both of the following:
- iThe type and amount of support
- iiThe primary reasons for providing the support.
An entity also is encouraged to disclose information about any liquidity arrangements, guarantees, or other commitments by third parties related to the transferred financial assets that may affect the fair value or risk of the related transferor's interest. - i
- 1
- aaThe entity's accounting policies for subsequently measuring assets or liabilities that relate to the continuing involvement with the transferred financial assets.
- bThe key inputs and assumptions used in measuring the fair value of assets or liabilities that relate to the transferor's continuing involvement including, at a minimum, but not limited to, quantitative information about all of the following:
- 1Discount rates
- 2Expected prepayments including the expected weighted-average life of prepayable financial assets (see paragraph 860-20-50-3(c)(2))
- 3Anticipated credit losses, including expected static pool losses, if applicable. Expected static pool losses can be calculated by summing the actual and projected future credit losses and dividing the sum by the original balance of the pool of assets.
If an entity has aggregated transfers during a period in accordance with the guidance beginning in paragraph 860-10-50-5, it may disclose the range of assumptions. - 1
- cFor the transferor's interest in the transferred financial assets, a sensitivity analysis or stress test showing the hypothetical effect on the fair value of those interests (including any servicing assets or servicing liabilities) of two or more unfavorable variations from the expected levels for each key assumption that is reported under item (b) of this paragraph independently from any change in another key assumption.
- dA description of the objectives, methodology, and limitations of the sensitivity analysis or stress test.
- eInformation about the asset quality of transferred financial assets and any other financial assets that it manages together with them. This information shall be separated between assets that have been derecognized and assets that continue to be recognized in the statement of financial position. This information is intended to provide financial statement users with an understanding of the risks inherent in the transferred financial assets as well as in other financial assets and liabilities that it manages together with transferred financial assets. For example, information for receivables shall include, but is not limited to both of the following:
- 1
- 2
- 3
- 4Delinquencies at the end of the period
- 5Credit losses, net of recoveries, during the period.
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1For each interim and annual statement of financial position presented, regardless of when the transfer occurred, an entity shall disclose all of the following: - aQualitative and quantitative information about the transferor's continuing involvement with transferred financial assets that provides financial statement users with sufficient information to assess the reasons for the continuing involvement and the risks related to the transferred financial assets to which the transferor continues to be exposed after the transfer and the extent that the transferor's risk profile has changed as a result of the transfer (including, but not limited to, credit risk, interest rate risk, and other risks), including all of the following:
- 1The total principal amount outstanding
- 2The amount that has been derecognized
- 3The amount that continues to be recognized in the statement of financial position
- 4The terms of any arrangements that could require the transferor to provide financial support (for example, liquidity arrangements and obligations to purchase assets) to the transferee or its beneficial interest holders, including both of the following:
- iA description of any events or circumstances that could expose the transferor to loss
- iiThe amount of the maximum exposure to loss.
- i
- 5Whether the transferor has provided financial or other support during the periods presented that it was not previously contractually required to provide to the transferee or its beneficial interest holders, including—when the transferor assisted the transferee or its beneficial interest holders in obtaining support—both of the following:
- iThe type and amount of support
- iiThe primary reasons for providing the support.
An entity also is encouraged to disclose information about any liquidity arrangements, guarantees, or other commitments by third parties related to the transferred financial assets that may affect the fair value or risk of the related transferor's interest. - i
- 1
- aaThe entity's accounting policies for subsequently measuring assets or liabilities that relate to the continuing involvement with the transferred financial assets.
- bThe key inputs and assumptions used in measuring the fair value of assets or liabilities that relate to the transferor's continuing involvement including, at a minimum, but not limited to, quantitative information about all of the following:
- 1Discount rates
- 2Expected prepayments including the expected weighted-average life of prepayable financial assets (see paragraph 860-20-50-3(c)(2))
- 3Anticipated credit losses, including expected static pool losses, if applicable. Expected static pool losses can be calculated by summing the actual and projected future credit losses and dividing the sum by the original balance of the pool of assets.
If an entity has aggregated transfers during a period in accordance with the guidance beginning in paragraph 860-10-50-5, it may disclose the range of assumptions. - 1
- cFor the transferor's interest in the transferred financial assets, a sensitivity analysis or stress test showing the hypothetical effect on the fair value of those interests (including any servicing assets or servicing liabilities) of two or more unfavorable variations from the expected levels for each key assumption that is reported under item (b) of this paragraph independently from any change in another key assumption.
- dA description of the objectives, methodology, and limitations of the sensitivity analysis or stress test.
- eInformation about the asset quality of transferred financial assets and any other financial assets that it manages together with them. This information shall be separated between assets that have been derecognized and assets that continue to be recognized in the statement of financial position. This information is intended to provide financial statement users with an understanding of the risks inherent in the transferred financial assets as well as in other financial assets and liabilities that it manages together with transferred financial assets. For example, information for receivables shall include, but is not limited to both of the following:
- 1
- 2
- 3
- 4Delinquencies at the end of the period
- 5Credit losses, net of recoveries, during the period.
860-20-50-4A
The disclosure requirement in paragraph 860-20-50-4D applies to transactions accounted for as a sale that comprise both of the following:
- aA transfer of financial assets to a transferee
- bAn agreement entered into in contemplation of the initial transfer with the transferee that results in the transferor retaining substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction. For purposes of this paragraph, an agreement entered into in contemplation of the initial transfer refers to transactions that depend on the execution of one another and that are entered into for the same business purpose.
860-20-50-4B
The transactions described in paragraph 860-20-50-4A include both of the following types:
- aTransfers of financial assets with an agreement to repurchase the transferred financial asset (or a substantially-the-same financial asset) before maturity at a fixed or determinable price that will be settled in a form other than the return of the transferred financial asset (for example, the transaction is cash-settled)
- bTransfers of financial assets with an agreement that requires that the transferor retain substantially all of the exposure to the economic return on the transferred financial asset (for example, a sale with a total return swap).
860-20-50-4C
The following items are not subject to the requirements in paragraph 860-20-50-4D:
- aTransfers of financial assets with an agreement to purchase another financial asset that is not substantially the same as the initial transferred financial asset in accordance with paragraph 860-10-40-24(a), for example, a dollar roll transaction accounted for as a sale because the financial asset to be purchased is not substantially the same as the initially transferred financial asset in accordance with paragraph 860-10-40-24(a)
- bTransactions described in paragraph 860-20-50-2 that are subject to the disclosures in paragraphs .
860-20-50-4D
To provide an understanding of the nature of the transactions, the transferor's continuing exposure to the transferred financial assets, and the presentation of the components of the transaction in the financial statements, an entity shall disclose the following for outstanding transactions at the reporting date that meet the scope guidance in paragraphs by type of transaction (for example, repurchase agreement, securities lending transaction, and sale and total return swap) (except for those transactions that are excluded from the scope, as described in paragraph 860-20-50-4C):
- aThe carrying amount of assets derecognized as of the date of derecognition:
- 1If the amounts that have been derecognized have changed significantly from the amounts that have been derecognized in prior periods or are not representative of the activity throughout the period, a discussion of the reasons for the change shall be disclosed.
- 1
- bThe amount of gross cash proceeds received by the transferor for the assets derecognized as of the date of derecognition.
- cInformation about the transferor's ongoing exposure to the economic return on the transferred financial assets:
- 1As of the reporting date, the fair value of assets derecognized by the transferor.
- 2Amounts reported in the statement of financial position arising from the transaction (for example, the carrying value or fair value of forward repurchase agreements or swap contracts). To the extent that those amounts are captured in the derivative disclosures presented in accordance with paragraph 815-10-50-4B, an entity shall provide a cross-reference to the appropriate line item in that disclosure.
- 3A description of the arrangements that result in the transferor retaining substantially all of the exposure to the economic return on the transferred financial assets and the risks related to those arrangements.
- 1
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1To provide an understanding of the nature of the transactions, the transferor's continuing exposure to the transferred financial assets, and the presentation of the components of the transaction in the financial statements, an entity shall disclose the following for outstanding transactions at the interim and annual reporting dates that meet the scope guidance in paragraphs by type of transaction (for example, repurchase agreement, securities lending transaction, and sale and total return swap) (except for those transactions that are excluded from the scope, as described in paragraph 860-20-50-4C):- aThe carrying amount of assets derecognized as of the date of derecognition:
- 1If the amounts that have been derecognized have changed significantly from the amounts that have been derecognized in prior periods or are not representative of the activity throughout the period, a discussion of the reasons for the change shall be disclosed.
- 1
- bThe amount of gross cash proceeds received by the transferor for the assets derecognized as of the date of derecognition.
- cInformation about the transferor's ongoing exposure to the economic return on the transferred financial assets:
- 1As of the reporting date, the fair value of assets derecognized by the transferor.
- 2Amounts reported in the statement of financial position arising from the transaction (for example, the carrying value or fair value of forward repurchase agreements or swap contracts). To the extent that those amounts are captured in the derivative disclosures presented in accordance with paragraph 815-10-50-4B, an entity shall provide a cross-reference to the appropriate line item in that disclosure.
- 3A description of the arrangements that result in the transferor retaining substantially all of the exposure to the economic return on the transferred financial assets and the risks related to those arrangements.
- 1
860-20-50-5
The aggregate amount of gains or losses on sales of loans or trade receivables (including adjustments to record loans held for sale at the lower of amortized cost basis or fair value) shall be presented separately in the financial statements or disclosed in the notes to financial statements. See Topic 310 on receivables and Topic 326 on measurement of credit losses for a full discussion of disclosure requirements for loans and trade receivables.
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1For interim and annual reporting periods, the aggregate amount of gains or losses on sales of loans or trade receivables (including adjustments to record loans held for sale at the lower of amortized cost basis or fair value) shall be presented separately in the financial statements or disclosed in the notes to financial statements. See Topic 310 on receivables and Topic 326 on measurement of credit losses for a full discussion of disclosure requirements for loans and trade receivables.860-20-55Implementation Guidance and Illustrations
Source downloaded: .Record version 8e864779a0c6. Effective date must be checked in the source.
Implementation Guidance
860-20-55-1
The following is implementation guidance related to the guidance in this Subtopic, specifically:
- a
- bEstimating the fair value of certain beneficial interests
- cAccrued interest receivable
- dOptions embedded in transferred securities
- eCredit risk associated with transferred assets
- fTransfer of a bond purchased at a premium
- gSales or securitizations of lease receivables
- h
- iForward contracts in revolving-period securitizations
- jSubsequent measurement of interests issued in securitization transactions
- kTransferor regains control of assets through a removal-of-accounts provision.
860-20-55-16
Trust liquidation methods that allocate receipts of principal or interest between beneficial interest holders and transferors in proportions different from their stated percentage of ownership interests do not affect whether the transferor should obtain sale accounting and derecognize those transferred assets, assuming the trust is not required to be consolidated by the transferor. However, both turbo and bullet provisions in securitization structures (as discussed in paragraph 860-10-05-3) should be taken into consideration in determining the fair values of assets obtained by the transferor and transferee.
860-20-55-17
The receivables for accrued fee and finance charge income on an investors' portion of the transferred credit card receivables, whether billed but uncollected or accrued but unbilled, are commonly referred to as accrued interest receivable. The following addresses how the accrued interest receivable related to securitized and sold receivables should be accounted for and reported under this Subtopic. This guidance applies to credit card securitizations as well as other kinds of securitizations.
860-20-55-18
The right to receive the accrued interest receivable, if and when collected, is transferred to the securitization trust. Generally, if a securitization transaction meets the criteria for sale treatment and the accrued interest receivable is subordinated either because the asset has been isolated from the transferor (see paragraph 860-10-40-5) or because of the operation of the cash flow distribution (or waterfall) through the securitization trust, the total accrued interest receivable should be considered to be one of the components of the sale transaction. Therefore, under the circumstances described, the accrued interest receivable asset should be accounted for as a transferor's interest.It is inappropriate to report the accrued interest receivable related to securitized and sold receivables as loans receivable or other terminology implying that it has not been subordinated to the senior interests in the securitization.
860-20-55-19
While, under the circumstances described, the accrued interest receivable is a transferor's interest, it is not required to be subsequently measured like an investment in debt securities classified as available for sale or trading under Topic 320 or the Transfers and Servicing Topic because the accrued interest receivable cannot be contractually prepaid or settled in such a way that the owner would not recover substantially all of its recorded investment. Entities should follow existing applicable accounting standards, including Topic 326 on measurement of credit losses, in subsequent accounting for the accrued interest receivable asset.
860-20-55-20
This guidance addresses transactions that involve the sale of a marketable security to a third-party buyer, with the buyer's having an option to put the security back to the seller at a specified future date or dates for a fixed price. Because of the put option, the seller generally receives a premium price for the security.
860-20-55-21
If the transfer is accounted for as a sale, a put option that enables the holder to require the writer of the option to reacquire for cash or other assets a marketable security or an equity instrument issued by a third party should be accounted for as a derivative by both the holder and the writer, provided the put option meets the definition of a derivative in paragraph 815-10-15-83 (including meeting the net settlement requirement, which may be met if the option can be net settled in cash or other assets or if the asset required to be delivered is readily convertible to cash). If multiple put options exist, recognition of the multiple put options as liabilities, and initial measurement at fair value, are required.
860-20-55-22
A put option that is issued as part of a transfer being accounted for as a sale that is not accounted for as a derivative under Subtopic 815-10 would be considered a guarantee under paragraph 460-10-55-2(b) and would be subject to its initial recognition, initial measurement, and disclosure requirements. If the written put option is accounted for as a derivative under Subtopic 815-10 by the seller-transferor, then the put option would be subject to only the disclosure requirements of Topic 460.
860-20-55-23
If the transaction is accounted for as a secured borrowing under Subtopic 860-30, any difference between the sale proceeds and the put price shall be accrued as interest expense, and any impairment of the underlying security would generally not be recognized. The difference between the original sale price and the put price should be amortized over the period to the first date the securities are eligible to be put back. If the transfer is accounted for as a secured borrowing, the put option falls under paragraph 815-10-15-63, which provides a scope exception for a derivative instrument (such as the put option) that serves as an impediment to sale accounting under Subtopic 860-10. The guidance in paragraph 815-10-55-41 may also be relevant.
860-20-55-24
A transferor may hold some portion of the credit risk associated with a transfer of an entire financial asset or group of entire financial assets. For example, a transferor may incur a liability to reimburse the transferee, up to a certain limit, for a failure of debtors to pay when due (a recourse liability). In that circumstance, a liability should be separately recognized and initially measured at fair value. That liability should be subsequently measured according to guidance in other Topics for measuring similar liabilities. In other circumstances, a transferor may provide credit enhancement through its ownership of a beneficial interest in the transferred financial assets if that beneficial interest is not paid until the other investors in the transferred financial assets are paid, thereby resulting in the transferor absorbing much of the related credit risk. As a result, the beneficial interests that are obtained by the transferor should be initially recognized according to paragraph 860-20-25-1.
860-20-55-24A
If the transfer does not consist of an entire financial asset or group of entire financial assets, the transferred financial asset must meet the definition of a participating interest. Paragraph 860-10-40-6A(c)(4) states that, to meet that definition, participating interest holders shall have no recourse to the transferor (or its consolidated affiliates included in the financial statements being presented or its agents) or to each other, other than any of the following:
- aStandard representations and warranties
- bOngoing contractual obligations to service the entire financial asset and administer the transfer contract
- cContractual obligations to share in any set-off benefits received by any participating interest holder.
860-20-55-25
Assume an entity transfers a bond to an unconsolidated entity for cash and beneficial interests. When the transferor purchased the bond, it paid a premium for it (or bought it at a discount), and that premium (or discount) was not fully amortized (or accreted) at the date of the transfer. In other words, the carrying amount of the bond included a premium (or discount) at the date of the transfer. If the transfer of the bond is accounted for as a secured borrowing under Subtopic 860-30, the transferor would continue to amortize (or accrete) the premium (or discount) because paragraph 860-30-25-2 requires that the transferor continue to report the transferred financial assets in its statement of financial position with no change in their measurement (that is, basis of accounting). If the transfer of the bond satisfies the conditions to be accounted for as a sale, any beneficial interests received as proceeds would be initially recognized at fair value. As a result, the previously existing premium (or discount) would not continue to be amortized (or accreted); rather, the unamortized (or nonaccreted) amount would be included in the calculation of the gain (or loss) as of the transfer date.
860-20-55-26
A transferor of lease receivables shall allocate the gross investment in receivables between lease payments, residual values guaranteed at commencement, and residual values not guaranteed at commencement using the individual carrying amounts of those components at the date of transfer. Those transferors also shall record a servicing asset or liability in accordance with Subtopic 860-50, if appropriate.
860-20-55-27
See paragraph 860-10-55-6 for further discussion of lease receivables.
860-20-55-29
The requirement that all financial assets obtained and liabilities incurred by the transferor of a securitization that qualifies as a sale shall be recognized and measured as provided in this Subtopic includes the implicit forward contract to sell additional financial assets during a revolving period. Such a forward contract may become valuable or onerous to the transferor as interest rates and other market conditions change.
860-20-55-30
The value of the forward contract implicit in a revolving-period securitization arises from the difference between the agreed-upon rate of return to investors on their beneficial interests in the trust and current market rates of return on similar investments. For example, if the agreed-upon annual rate of return to investors in a trust is 6 percent, and later market rates of return for those investments increased to 7 percent, the forward contract's value to the transferor (and burden to the investors) would approximate the present value of 1 percent of the amount of the investment for each year remaining in the revolving structure after the receivables already transferred have been collected. If a forward contract to sell receivables is entered into at the market rate, its value at inception may be zero. Changes in the fair value of the forward contract are likely to be greater if the investors receive a fixed rate than if the investors receive a rate that varies based on changes in market rates.
860-20-55-31
Gain or loss recognition for revolving-period receivables sold to a securitization trust is limited to receivables that exist and have been sold.
860-20-55-32
The following is implementation guidance related to the subsequent measurement of various types of financial assets subject to prepayment, specifically:
- aInstruments that can be prepaid or otherwise settled in such a way that the holder would not recover substantially all of the recorded investment
- bLoan that can be prepaid or otherwise settled in such a way that the holder would not recover substantially all of the recorded investment at initial acquisition
- cClassification of a residual tranche in a securitization as held to maturity.
860-20-55-33
The following discusses whether the following types of instruments are subject to the subsequent measurement guidance in paragraph 860-20-35-2:
- aA financial asset that is not a debt security denominated in a foreign currency
- bA note for which the repayment amount is indexed to the creditworthiness of a party other than the issuer.
860-20-55-34
Investing in a financial asset that is denominated in a foreign currency often exposes an entity to foreign currency exchange rate risk; however, that risk is not addressed in paragraph 860-20-35-2.
860-20-55-35
A financial asset that is not a debt security under Topic 320 is not subject to the requirements of paragraph 860-20-35-2 because it is denominated in a foreign currency.
860-20-55-36
An entity is not required to measure such an investment like a debt security under paragraph 860-20-35-2 unless it has provisions that allow it to be contractually prepaid or otherwise settled in such a way that the holder would not recover substantially all of its recorded investment, as denominated in the foreign currency. For example, an investment denominated in deutsche marks by an entity with a U.S. dollar functional currency would not be subject to that paragraph if the contract requires that substantially all of the invested deutsche marks be repaid.
860-20-55-37
A note for which the repayment amount is indexed to the creditworthiness of a party other than the issuer is subject to the provisions of paragraph 860-20-35-2 because the event that might cause the holder to receive less than substantially all of its recorded investment is based on a contractual provision, not on a default by the borrower (that is, the issuer of the note). That contractual provision indexes the payment terms of the note to a default by a third party unrelated to the issuer of the note. If that note is within the scope of Subtopic 815-10 the guidance of paragraph 860-20-35-2 would not apply.
860-20-55-38
A loan (that is not a debt security) that when initially obtained could be contractually prepaid or otherwise settled in such a way that the holder would not recover substantially all of its recorded investment may be reclassified as held for investment later in its life (that is, at a date that is so close to the financial asset's maturity that the holder would recover substantially all of its recorded investment even if it was prepaid). That is, the loan would no longer be required to be measured in accordance with the guidance in paragraph 860-20-35-2if both of the following conditions are met:
- aIt would no longer be possible for the holder not to recover substantially all of its recorded investment upon contractual prepayment or settlement.
- bThe conditions for amortized cost accounting are met (for example, paragraphs 310-10-35-47 and 948-310-25-1).
860-20-55-39
Whether a residual tranche debt security in a securitization of financial assets (for example, receivables) using a securitization entity can be classified as held to maturity depends on the facts and circumstances. If the contractual provisions of the residual tranche debt security provide that the residual tranche can contractually be prepaid or otherwise settled in such a way that the holder would not recover substantially all of its recorded investment, paragraph 860-20-35-2 precludes the residual tranche debt security from being accounted for as held to maturity. In contrast, if the only way that the holder of the residual tranche would not recover substantially all of its recorded investment would be in response to a default by the borrower (debtor), then a held-to-maturity classification is acceptable if the conditions specified for a held-to-maturity classification in paragraphs 320-10-25-1(c) and 320-10-25-5(a) have been met.
860-20-55-40
This guidance addresses implementation of paragraph 860-20-25-11. Under that paragraph's guidance, if the removal-of-accounts provision is not exercised, the financial assets are recognized because the transferor now can unilaterally cause the transferee to return those specific financial assets and, therefore, the transferor once again has effective control over those transferred financial assets (see paragraphs ).
860-20-55-41
Similarly, when a contingency related to a transferor's contingent right has been met, the transferor generally must account for the repurchase of a specific subset of the financial assets transferred to and held by the entity. When the contingency has been met, the transferor has a unilateral right to purchase a specific transferred financial asset. At that point, the transferor must determine whether the unilateral right to purchase a specific transferred financial asset provides the transferor with a more-than-trivial benefit. If the unilateral right to purchase a specific transferred financial asset provides the transferor with a more-than-trivial benefit, the transfer fails the criterion in paragraph 860-10-40-5(c)(2). The transferor must perform this analysis regardless of whether it intends to exercise its call option.
860-20-55-42
Although this guidance uses removal-of-accounts provisions as an example, the guidance is not limited to removal-of-accounts provisions. Contingent rights can arise in many other situations. See paragraphs for more information.
Illustrations
860-20-55-43
This Example illustrates the guidance in paragraphs 860-20-25-1 and 860-20-30-1. Entity A transfers entire loans with a carrying amount of $1,000 to an unconsolidated securitization entity and receives proceeds with a fair value of $1,030, and the transfer is accounted for as a sale. Entity A undertakes no obligation to service and assumes a limited recourse obligation to repurchase delinquent loans. Entity A agrees to provide the transferee a return at a variable rate of interest even though the contractual terms of the loan are fixed rate in nature (that provision is effectively an interest rate swap).
860-20-55-44
This Example has the following assumptions.
Fair Values Cash proceeds " $1,050 " Interest rate swap asset 40 Recourse obligation 60 Net Proceeds Cash received " $1,050 " Plus: Interest rate swap asset 40 Less: Recourse obligation (60) Net proceeds " $1,030 " Gain on Sale Net proceeds " $1,030 " Less: Carrying amount of loans sold " (1,000)" Gain on sale $30
860-20-55-45
The following journal entry is made by Entity A.
Journal Entry Cash " $1,050 " Interest rate swap asset 40 Loans " $1,000 " Recourse obligation 60 Gain on sale 30 To record transfer
860-20-55-46
This Example illustrates the guidance in paragraph 860-20-25-1. This Example assumes the conditions for a sale in paragraph 860-10-40-5 are met. Entity B transfers a nine-tenths participating interest in a loan with a fair value of $1,100 and a carrying amount of $1,000, and the transfer is accounted for as a sale. The servicing contract has a fair value of zero because Entity B estimates that the benefits of servicing are just adequate to compensate it for its servicing responsibilities.
860-20-55-47
This Example has the following assumptions.
Fair Values "Cash proceeds for nine-tenths participating interest sold ($1,100 x 9/10) " $990 "One-tenth participating interest that continues to be held by the transferor ($1,100 x 1/10) " 110
Allocated Carrying Amount Based on Relative Fair Values Fair Value Percentage of Total Fair Value Allocated Carrying Amount Nine-tenths participating interest sold $990 90 $900 One-tenth participating interest that continues to be held by the transferor 110 10 100 Total $1,100 100 $1,000
Gain on Sale Net proceeds $990 Less: Carrying amount of loans sold (900) Gain on sale $90
860-20-55-48
The following journal entry is made by Entity B.
Journal Entry Cash $990 Loans $900 Gain on sale 90 To record transfer
860-20-55-58
860-20-25-1At the beginning of the second year in a 10-year sales-type lease, Entity E transfers for $505 a nine-tenths participating interest in the lease receivable to an independent third party, and the transfer is accounted for as a sale. Entity E retains a one-tenth participating interest in the lease receivable and a 100 percent interest in the unguaranteed residual asset, which is not subject to the requirements of this Subtopic as discussed in paragraph 860-10-55-6 because it is not a financial asset and, therefore, is excluded from the analysis of whether the transfer of the nine-tenths participating interest in the lease receivable meets the definition of a participating interest. The servicing asset has a fair value of zero because Entity E estimates that the benefits of servicing are just adequate to compensate it for its servicing responsibilities. The carrying amounts and related gain computation are as follows.
Carrying Amounts Lease receivable $540 Unearned income related to lease receivable 370 Gross investment in lease receivable 910 Unguaranteed residual asset $30 Unearned income related to unguaranteed residual asset 60 Gross investment in unguaranteed residual asset 90 Total gross investment in lease receivable " $1,000 " Gain on Sale Cash received $505 Nine-tenths of carrying amount of gross investment in lease receivable $819 Nine-tenths of carrying amount of unearned income related to lease receivable 333 Net carrying amount of lease receivable sold 486 Gain on sale $19
860-20-55-59
The following journal entry is made by Entity E.
Journal Entry Cash $505 Unearned income 333 Lease receivable $819 Gain on sale 19 To record sale of nine-tenths of the lease receivable at the beginning of Year 2
860-20-55-83
This Example illustrates the accounting for a sale of loans in their entirety by a transferor to an unconsolidated entity and the subsequent accounting for the transferor's interest and a servicing asset. In this Example, the transferor's interest is an interest-only strip that is accounted for at fair value in the same manner as an available-for-sale security under paragraph 860-20-35-2.
860-20-55-84
This Example has the following assumptions.
860-20-55-85
On January 2, 20X1, Entity I (the transferor) originates $1,000 of loans, yielding 10.5 percent interest income for their estimated life of 9 years. Entity I later transfers the loans in their entirety to an unconsolidated entity and accounts for the transfer as a sale. Entity I receives as proceeds $1,000 cash plus a beneficial interest that entitles it to receive 1 percent of the contractual interest (an interest-only strip receivable). Entity I will continue to service the loans for a fee of 100 basis points. The guarantor, a third party, receives 50 basis points as a guarantee fee.
860-20-55-86
At the date of transfer, the following facts are assumed.
- aThe fair value of the servicing asset is $40.
- bThe total fair value of the loans including servicing is $1,040.
- cThe fair value of the interest-income strip receivable is $60.
860-20-55-87
On December 1, 20X1, an event occurs that results in the transfer not meeting the conditions for sale accounting. The fair value of the originally transferred financial assets that remain outstanding in the entity on that date is $929. The fair value of Entity I's interest (in the form of an interest-only strip) on that date is $58. The fair value of the servicing asset on that date is $38. The guarantee that was entered into by the entity does not trade with the underlying financial assets. The fees on this guarantee will be paid as part of the cash waterfall.
860-20-55-88
All cash flows from the financial assets transferred to the trust are initially sent directly to the trust and then distributed in order of priority. The priority of payments in the cash waterfall is as follows: servicing fees, guarantees, amounts due to outside beneficial interest holders, and amounts due to Transferor's beneficial interest.
860-20-55-90
The following journal entries would be made.
- January 2, 20X1
Cash $1000 Transferor's interest (available for sale) 60 Servicing asset 40 Loans $1000 Gain on sale 100 To record the sale of the assets and to recognize Entity I's interest and a servicing asset at fair value.- December 1, 20X1
Other comprehensive income $2 Entity I's interest (available for sale) $2 To subsequently measure Entity I's interest in the same manner as an available-for-sale security.
860-20-55-91
The following illustrates the accounting entry to be made after the event occurs that results in the transfer not meeting the conditions for sale accounting.
- December 1, 20X1
Loans $929 Due to Securitization Entity $929 To recognize the previously sold loans on Entity I's books along with the obligation to pass the cash flows associated with those loans to Securitization Entity.
860-20-55-92
Entity I would account for the rerecognized financial assets and transferor's interests as follows:
- aEntity I would continue to account for transferor's interests (in accordance with paragraph 320-10-35-1) at fair value with changes in fair value recognized in other comprehensive income.
- bEntity I would account for the loans at cost plus accrued interest in accordance with Subtopic 310-20.
860-20-55-108
This Example illustrates one approach for satisfying the quantitative disclosure requirements in paragraph 860-20-50-4D.
"Transfers of Financial Assets Accounted for as Sales (Dollars in millions)" At the Date of Derecognition for Transactions Outstanding At the Reporting Date " Type of Transaction" Carrying Amount Derecognized Gross Cash Proceeds Received for Assets Derecognized Fair Value of Transferred Assets Gross Derivative Assets Recorded (a) (b) Gross Derivative Liabilities Recorded (a) (b) Repurchase agreements $ XX $ XX $ XX $ XX $ XX Repo financings xx xx xx xx xx Sale and a total return swap XX XX XX XX XX Securities lending XX XX XX XX XX Total $ XX $ XX $ XX $ XX $ XX (a) "Balances are presented on a gross basis, before the application of counterparty and cash collateral offsetting." (b) "$XX of gross derivative assets and $XX of gross derivative liabilities are included as interest rate contracts in footnote X on derivative disclosures. $XX of gross derivative assets and $XX of gross derivative liabilities are included as credit risk contracts in footnote X on derivative disclosures. "