Derecognition of Financial Assets (MFRS 9, para 3.

2 )
In consolidated financial statements, derecognition is approximate to follow these three
conditions, (paragraphs 3.2.2- 3.2.9) :
Para 3.2.2
1. The part comprises only specifically identified cash flows from a financial asset (or a
group of similar financial assets). For example, when an entity enters into an interest
rate strip whereby the counterparty obtains the right to the interest cash flows, but not
the principal cash flows from a debt instrument.
2. The part comprises only a fully proportionate (pro rata) share of the cash flows from a
financial asset (or a group of similar financial assets). For example, when an entity
enters into an arrangement whereby the counterparty obtains the rights to a 90 per
cent share of all cash flows of a debt instrument( para 3.23-3.2.9 are applied). If there
is more than one counter party, each counter party is not required to have a
proportionate share of the cash flows provided that the transferring entity has a fully
proportionate share.
3. The part comprises only a fully proportionate (pro rata) share of specifically identified
cash flows from a financial asset (or a group of similar financial assets). For example,
when an entity enters into an arrangement whereby the counterparty obtains the rights
to a 90 per cent share of interest cash flows from a financial asset, paragraphs 3.2.3
3.2.9 are applied to 90 per cent of those interest cash flows. If there is more than one
counterparty, each counterparty is not required to have a proportionate share of the
specifically identified cash flows provided that the transferring entity has a fully
proportionate share
Para 3.2.3
An entity shall derecognise a financial asset when , and only when :
a. The contractual right to the cash flows from the financial asset expire, or
b. It transfer the financial asset as set in paragraphs 3.24 and 3.25
Para 3.2.4
An entity transfers a financial asset if, and only if, it either :
a. transfers the contractual rights to receive the cash flows of the financial asset or
b. retains the contractual rights to receive the cash flows of the financial asset, but
assumes a contractual obligation to pay the cash flows to one or more recipients in an
arrangement that meets the conditions
Para 3.2.5
When an entity retains the contractual rights to receive the cash flows of a financial asset (the
original asset), but assumes a contractual obligation to pay those cash flows to one or more

entities (the eventual recipients), the entity treats the transaction as a transfer of a financial
asset if, and only if, all of the following three conditions are met.
(a) The entity has no obligation to pay amounts to the eventual recipients unless it
collects equivalent amounts from the original asset. Short-term advances by the entity
with the right of full recovery of the amount lent plus accrued interest at market rates
do not violate this condition.
(b) The entity is prohibited by the terms of the transfer contract from selling or
pledging the original asset other than as security to the eventual recipients for the
obligation to pay them cash flows.
(c) The entity has an obligation to remit any cash flows it collects on behalf of the
eventual recipients without material delay. In addition, the entity is not entitled to
reinvest such cash flows, except for investments in cash or cash equivalents (as
defined in IAS 7 Statement of Cash Flows) during the short settlement period from the
collection date to the date of required remittance to the eventual recipients, and
interest earned on such investments is passed to the eventual recipients
Para 3.2.6
When an entity transfers a financial asset (see paragraph 3.2.4), it shall
evaluate the extent to which it retains the risks and rewards of ownership
of the financial asset. In this case:
a. if the entity transfers substantially all the risks and rewards of ownership of
the financial asset, the entity shall derecognise the financial asset and
recognise separately as assets or liabilities any rights and obligations created
or retained in the transfer.
b. if the entity retains substantially all the risks and rewards of ownership of the
financial asset, the entity shall continue to recognise the financial asset.
c. if the entity neither transfers nor retains substantially all the risks and rewards
of ownership of the financial asset, the entity shall determine whether it has
retained control of the financial asset. In this case:
I.
if the entity has not retained control, it shall derecognise the financial
asset and recognise separately as assets or liabilities any rights and
obligations created or retained in the transfer.
II.
if the entity has retained control, it shall continue to recognise the
financial asset to the extent of its continuing involvement in the
financial asset (see paragraph 3.2.16).

Derecognition Cash Flow

Risk and Reward of the Ownership