A financial components approach is applied when receivables are sold, but there is continued involvement by the seller in the receivable. A transfer of receivables should be recognized as a sale when the following conditions are met: 1. The transferr doesn't retain effective control over the transferred assets through an agreement to repurchase or redeem them before their maturity. 2. The transferred resource has been isolated from the transferor (beyond the reach of the creditors and transferor). 3. The transferees have obtained the right to exchange or pledge either the beneficial interest or transferred assets in the transferred resource.
Work Step by Step
Example of continued involvement is resource provisions or continuing rights to service the receivable.