DO only EXAMPLE 3 IN THE CASE Isolation is satisfied in both scenarios This case involves application and interpetation o the appropriate sub-paragraphs of ASC 860-10-40-5 A Drug Kiing transfers trade receivables to InsureAll. The trade receivables have a fair value of $100 (book value is $99) and were transferred for $103. The transfer includes an option for InsureAll to put the assets back to Drugking for up to one year after the transfer date at $102.50. The transfer price of $103 represents the fair values of the trade receivables ($100) and the put option ($3). You may assume that InsureAll is earning interest from customers on the receivables. SALE or FINANCING? EXPLAIN: ASC SUB-PARA CITE[S]: 860-10-40-5 40-5 A transfer of an entire financial asset, a group of entire financial assets... in which the transferor surrenders control ... shall be accounted for as asale if and only if all of the following conditions are met: - . a. Isolation of transferred financial assets. The transferred financial assets have been isolated from the transferor-put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership. .b. Transferee's rights to pledge or exchange. This condition is met if both of the following conditions are met: 1. Each transferee ... has the right to pledge or exchange the assets (or 1 beneficial interests) it received. 2. No condition does both of the following: i. Constrains the transferee (or third-party holder of its beneficial interests) from taking advantage of its right to pledge or exchange ji. Provides more than a trivial benefit to the transferor [860-10- 40-15 to 211 If the transferor, ..consolidated affiliates ... agents have no continuing involvement with the transferred financial assets, the condition under [this] paragraph is met c. Effective control. The transferor ... consolidated affiliates agents do not maintain effective control over the transferred financial assets... A transferors effective control over the transferred financial assets includes, but is not limited to, any of the following: 1. An agreement that both entitles and obligates the transferor to repurchase or redeem them before their maturity (see paragraphs 2. An agreement, other than through a cleanup call, that provides the transferor with both of the following: i. The unilateral ability to cause the holder to return specific financial assets ji. A more-than-trivial benefit attributable to that ability. 3. An agreement that permits the transferee to require the transferor to repurchase the transferred financial assets at a price that is so favorable to the transferee that it is probable that the transferee will require the transferor to repurchase them B Drug Kiing transfers credit card receivables to InsureAll. The credit card receivables have a fair value of $100 (book value is $99) and were transferred to InsureAll for $150. The transfer includes an option, which expires in 10 days, for InsureAll to put the assets back to DrugKing at $151. The possibility of the fair value of the asset increasing to $151 in 10 days is considered remote and, therefore, the exercise price of the option appears to be sufficiently favorable such that it is probable at inception that it will be exercised. The transfer price of $150 represents the fair values of the credit card receivables ($100) and the put option ($50). SALE or FINANCING? EXPLAIN: ASC SUB-PARA CITE[S]: ( Sheet1 dy DO only EXAMPLE 3 IN THE CASE Isolation is satisfied in both scenarios This case involves application and interpetation o the appropriate sub-paragraphs of ASC 860-10-40-5 A Drug Kiing transfers trade receivables to InsureAll. The trade receivables have a fair value of $100 (book value is $99) and were transferred for $103. The transfer includes an option for InsureAll to put the assets back to Drugking for up to one year after the transfer date at $102.50. The transfer price of $103 represents the fair values of the trade receivables ($100) and the put option ($3). You may assume that InsureAll is earning interest from customers on the receivables. SALE or FINANCING? EXPLAIN: ASC SUB-PARA CITE[S]: 860-10-40-5 40-5 A transfer of an entire financial asset, a group of entire financial assets... in which the transferor surrenders control ... shall be accounted for as asale if and only if all of the following conditions are met: - . a. Isolation of transferred financial assets. The transferred financial assets have been isolated from the transferor-put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership. .b. Transferee's rights to pledge or exchange. This condition is met if both of the following conditions are met: 1. Each transferee ... has the right to pledge or exchange the assets (or 1 beneficial interests) it received. 2. No condition does both of the following: i. Constrains the transferee (or third-party holder of its beneficial interests) from taking advantage of its right to pledge or exchange ji. Provides more than a trivial benefit to the transferor [860-10- 40-15 to 211 If the transferor, ..consolidated affiliates ... agents have no continuing involvement with the transferred financial assets, the condition under [this] paragraph is met c. Effective control. The transferor ... consolidated affiliates agents do not maintain effective control over the transferred financial assets... A transferors effective control over the transferred financial assets includes, but is not limited to, any of the following: 1. An agreement that both entitles and obligates the transferor to repurchase or redeem them before their maturity (see paragraphs 2. An agreement, other than through a cleanup call, that provides the transferor with both of the following: i. The unilateral ability to cause the holder to return specific financial assets ji. A more-than-trivial benefit attributable to that ability. 3. An agreement that permits the transferee to require the transferor to repurchase the transferred financial assets at a price that is so favorable to the transferee that it is probable that the transferee will require the transferor to repurchase them B Drug Kiing transfers credit card receivables to InsureAll. The credit card receivables have a fair value of $100 (book value is $99) and were transferred to InsureAll for $150. The transfer includes an option, which expires in 10 days, for InsureAll to put the assets back to DrugKing at $151. The possibility of the fair value of the asset increasing to $151 in 10 days is considered remote and, therefore, the exercise price of the option appears to be sufficiently favorable such that it is probable at inception that it will be exercised. The transfer price of $150 represents the fair values of the credit card receivables ($100) and the put option ($50). SALE or FINANCING? EXPLAIN: ASC SUB-PARA CITE[S]: ( Sheet1 dy