Question

In deciding whether financing with receivables is a secured borrowing or a sale under U.S. GAAP, the critical element is the extent to which:
A. The transferor of the receivable surrenders control over the assets transferred.
B. The age of the receivables transferred differs from the average age of the receivabless
C. The transferee has received substantially all the risks and rewards of ownership.
D. The transferee relies on funds from the transferor to maintain operations.

Answer 1

Answer: A. The transferor of the receivable surrenders control over the assets transferred.

Explanation:

In US GAAP, a sale or a secured borrowing can indeed be ascertained by the transferor of assets surrendering control over the assets they have transferred.

However, sometimes the person may not submit complete control.

Sometimes they may be able to RETAIN an INTEREST in the Receivables or they may be able to SERVICE the Receivables after sale.

The main point of the matter is this, the more control the Transferor has over the assets, the more it is termed a SECURED BORROWING and the less control they have, the more it is termed a SALE.