Conceptual Framework for Financial Reporting

Derecognition
Derecognition is the removal of all or part of a recognised asset or liability
from an entity’s statement of financial position. Derecognition normally
occurs when that item no longer meets the definition of an asset or of a
liability:
(a)
for an asset, derecognition normally occurs when the entity loses
control of all or part of the recognised asset; and
(b)
for a liability, derecognition normally occurs when the entity no
longer has a present obligation for all or part of the recognised
liability.
Accounting requirements for derecognition aim to faithfully represent both:
(a)
any assets and liabilities retained after the transaction or other event
that led to the derecognition (including any asset or liability acquired,
incurred or created as part of the transaction or other event); and
(b)
the change in the entity’s assets and liabilities as a result of that
transaction or other event.
The aims described in paragraph 5.27 are normally achieved by:
(a)
derecognising any assets or liabilities that have expired or have been
consumed, collected, fulfilled or transferred, and recognising any
resulting income and expenses. In the rest of this chapter, the term
‘transferred component’ refers to all those assets and liabilities;
(b)
continuing to recognise the assets or liabilities retained, referred to as
the ‘retained component’, if any. That retained component becomes a
unit of account separate from the transferred component. Accordingly,
no income or expenses are recognised on the retained component as a
result of the derecognition of the transferred component, unless the
derecognition results in a change in the measurement requirements
applicable to the retained component; and
(c)
applying one or more of the following procedures, if that is necessary
to achieve one or both of the aims described in paragraph 5.27:
(i)
presenting any retained component separately in the statement
of financial position;
(ii)
presenting separately in the statement(s) of financial
performance any income and expenses recognised as a result of
the derecognition of the transferred component; or
(iii)
providing explanatory information.
In some cases, an entity might appear to transfer an asset or liability, but that
asset or liability might nevertheless remain an asset or liability of the entity.
For example:
5.26
5.27
5.28
5.29
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(a)
if an entity has apparently transferred an asset but retains exposure to
significant positive or negative variations in the amount of economic
benefits that may be produced by the asset, this sometimes indicates
that the entity might continue to control that asset (see
paragraph 4.24); or
(b)
if an entity has transferred an asset to another party that holds the
asset as an agent for the entity, the transferor still controls the asset
(see paragraph 4.25).
In the cases described in paragraph 5.29, derecognition of that asset or
liability is not appropriate because it would not achieve either of the two aims
described in paragraph 5.27.
When an entity no longer has a transferred component, derecognition of the
transferred component faithfully represents that fact. However, in some of
those cases, derecognition may not faithfully represent how much a
transaction or other event changed the entity’s assets or liabilities, even when
supported by one or more of the procedures described in paragraph 5.28(c). In
those cases, derecognition of the transferred component might imply that the
entity’s financial position has changed more significantly than it has. This
might occur, for example:
(a)
if an entity has transferred an asset and, at the same time, entered into
another transaction that results in a present right or present obligation
to reacquire the asset. Such present rights or present obligations may
arise from, for example, a forward contract, a written put option, or a
purchased call option.
(b)
if an entity has retained exposure to significant positive or negative
variations in the amount of economic benefits that may be produced
by a transferred component that the entity no longer controls.
If derecognition is not sufficient to achieve both aims described in
paragraph 5.27, even when supported by one or more of the procedures
described in paragraph 5.28(c), those two aims might sometimes be achieved
by continuing to recognise the transferred component. This has the following
consequences:
(a)
no income or expenses are recognised on either the retained
component or the transferred component as a result of the transaction
or other event;
(b)
the proceeds received (or paid) upon transfer of the asset (or liability)
are treated as a loan received (or given); and
(c)
separate presentation of the transferred component in the statement
of financial position, or provision of explanatory information, is
needed to depict the fact that the entity no longer has any rights or
obligations arising from the transferred component. Similarly, it may
be necessary to provide information about income or expenses arising
from the transferred component after the transfer.
5.30
5.31
5.32
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One case in which questions about derecognition arise is when a contract is
modified in a way that reduces or eliminates existing rights or obligations. In
deciding how to account for contract modifications, it is necessary to consider
which unit of account provides users of financial statements with the most
useful information about the assets and liabilities retained after the
modification, and about how the modification changed the entity’s assets and
liabilities:
(a)
if a contract modification only eliminates existing rights or
obligations, the discussion in paragraphs 5.26–5.32 is considered in
deciding whether to derecognise those rights or obligations;
(b)
if a contract modification only adds new rights or obligations, it is
necessary to decide whether to treat the added rights or obligations as
a separate asset or liability, or as part of the same unit of account as
the existing rights and obligations (see paragraphs 4.48–4.55); and
(c)
if a contract modification both eliminates existing rights or obligations
and adds new rights or obligations, it is necessary to consider both the
separate and the combined effect of those modifications. In some such
cases, the contract has been modified to such an extent that, in
substance, the modification replaces the old asset or liability with a
new asset or liability. In cases of such extensive modification, the
entity may need to derecognise the original asset or liability, and
recognise the new asset or liability.
5.33
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C
ONTENTS
from paragraph