ACCA Strategic Business Reporting (SBR) Practice Exam

When should trade receivables be derecognised under IFRS 9?

1. Upon risk transfer to another party

2. When a customer makes a partial payment

3. Once the receivable is overdue

4. When the receivable's value decreases

The correct answer is: Upon risk transfer to another party

Trade receivables should be derecognised under IFRS 9 when the risks and rewards of ownership have been transferred to another party. This reflects the derecognition principle in IFRS 9, where an entity no longer recognizes an asset if control over it has been relinquished. The concept of transferring risks and rewards is crucial because it indicates that the entity is no longer exposed to the economic benefits associated with that asset. In practical terms, if a business sells a trade receivable to a factoring company, or if an arrangement is made that shifts the responsibility for the receivable to another entity, then derecognition is appropriate. This aligns with the framework’s goal of ensuring that financial statements represent the entity's current economic position accurately. Other scenarios, such as a customer making a partial payment or the receivable becoming overdue, do not inherently indicate a transfer of risks and rewards. Partial payments merely reduce the amount owed but do not affect ownership or control, while becoming overdue reflects credit risk but not ownership transfer. Similarly, a decline in value does not lead to derecognition; it affects the measurement of the receivable's impairment but not its status as a recognized asset. Therefore, the clear indicator for derecognition under IFRS