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A company delivers a group of its receivables to a bank, so that it can deliver the value of the invoices, prior to the collection of interest, and take charge of the subsequent collection. The bank will manage collections from debtors on behalf of the company, and the company will pay the bank a commission for the collection of accounts receivable. The company continues to have the obligation to the bank if the debtors do not pay, being obliged to pay the bank all the amounts not paid by its clients.
Problem 1: What is the correct accounting treatment for this transaction?
(a) The entity must remove accounts receivable from its statement of financial position (ie write off) and must not show any liability for the securities received from the bank.
(b) The entity should continue to recognize accounts receivable in its statements of financial position and show a liability for the securities received from the bank.(c) The entity should continue to recognize accounts receivable in its statements of financial position and should not show any liability for the securities received from the bank.
(d) The entity must remove accounts receivable from its statement of financial position (ie write off) and must show a liability for the securities received from the bank.
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