What type of loss would be recognized on the sale of receiva

What type of loss would be recognized on the sale of receivables to a factor at 80 percent of the face value?

Solution

The loss that would be recognized on the sale of receivables to a factor at 80 percent of the face value are as follows:-

1. Impairment loss :- Impairment loss is recognised in the accounts if in case there is only a sale of receivables of 80% of the face value In such case our recoverable amount is decreased as compared to our carring amount so we need to do the treatment of the impairment loss. This loss is calculated as per Ind AS. Mostly this is the diffrence of the recoverable amount and the carrying amount.

2. Bad debts loss :- Bad debts loss is the loss due to non recovery of amount from the debtors. In this there is a sale of 80% receivables and many of the 80% are such which are not pay the amount that is our bad debts loss.

3. Allowance for debtors / Provisions :- A provision is made in a firm for the amount of bad debts or we say for the amount of debtors which are not expected to realise so here we sale the 80% receivables means we have a fear of not receiving the amount from debtors so proper provision is required to maintain for it.

4. Commission expenses :- In case of sale of receivables we need to say some amount of commision to the party for realising the amount from the defaulted party that\'s why we need to pay some amount as a commision on it.