The financial reporting effects of selling receivables
The following note appears in Daimler’s 2011 Annual Report:
Based on market conditions and liquidity needs, Daimler may sell portfolios of retail and wholesale receivables to third parties. At the time of the sale, Daimler determines whether the legally transferred receivables meet the criteria for derecognition in conformity with the appropriate provisions. If the criteria are not met, the receivables continue to be recognized in the Group’s statement of financial position.
As of 31 December 2011, the carrying amount of receivables from financial services sold but not derecognized for accounting purposes amounted to €3496 million (2010: €1254 million). The associated risk and rewards are similar to those with respect to receivables from financial services that have not been transferred.
Required
(a) Why does Daimler sell receivables from its financial services arm?
(b) What does Daimler mean by “derecognition” from the sale of receivables? What entry does the company make to record the sale of receivables when the sales are derecognized?
(c) What is meant by receivables “sold but not derecognized”? What entry is made in this case?
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