Question

Johnson Corporation is considering transferring receivables to a collection agency in exchange for cash. During the negotiations, Johnson stated that they would like to retain ownership along with the benefits but plan to move control of the receivables to the collection agency. If both companies are in agreement with the proposal and the transfer is verified as a sale, how should Johnson Corporation report this transaction:

1. Under U.S. GAAP?
2. Under IFRS?

Answer 1

According to US GAAPs, following are the Conditions for the recording or recognizing the revenue in case of transferring the receivables to a collection agency in exchange for cash:

Sale of Goods: According to US GAAPs revenue should not be recognized until it is earned, realize or realizable. Revenue generally recognized when-

• Document to prove the transaction must be available.
• Possession of goods is also transferred to buyer.
• The sales price is fixed or determinable.
• Collection of revenue must be certain to recognize the revenue.

Therefore,

According to IFRS, following are the Conditions for the recording or recognizing the revenue in case of transferring the receivables to a collection agency in exchange for cash:

Sale of Goods: According to IFRS sale of goods is recognized when following condition are satisfied:

• The owner has transferred to the buyer the significant risks and rewards of ownership of the goods.
• The owner retains neither continuing managerial involvement to the associated with ownership nor effective control over the goods sold.
• The amount of revenue can be measured reliably.
• It is probable that the economic benefits associated with the transaction will flow to the entity.