In the times of crisis the transactions on assignment of claims become one of the mechanismsto quickly obtain cold cash.Let’s talk about compensation assignment of money claims, which arose on the sale of goods, works or services supply.
Accounting for creditors
According to the provisions of para.5 of Accounting Standards 15 income is recognized when the asset increase or liabilities reduction, which leads to increase in own capital (excluding capital increase at the expense of contributions of participants of the enterprise) provided that the income estimation can be reliably determined. It is indicated in para.9 of Accounting Standards 15: income should not be recognized if the exchange of products (goods, works, services and other assets), which are similar in appointment and have the same fair value.
Paragraph 6 of Accounting Standards 16 established that costs of the reporting period should be recognized as assets reduction or as liabilities increase, which leads to decrease in own capital of the company (excluding capital reduction due to its withdrawal or distribution by owners) provided that the costs estimation could be reliably determined.
Consequently, incomes or expenses from transactions of assignment of claims should be recognized in the accounting only financial result from such transactions - profit (income) or loss (expense).
We recommend keeping accounts receivable under contracts of assignment of claims separate from the accounts receivable on settlements with buyers and customers. Debit of sub-account 377 “Settlements with sundry debtors” should be used for that purpose.
The creditor 1 should see the separation of accounts receivable, which assigns to the creditor 2 when assignment of claims. Thus, accordingly Dt 377 Ct 361 “Payments to domestic buyers” should be operated. Since the creditor 2 assumes all risks concerning repayment of such accounts receivable, the creditor 1 should re-issue his/her accounts receivable with a certain discount. Thus, the creditor 1 should reflect such expenses under Dt of sub-account 949 “Other operating expenses” in correspondence with Ct 361.
Subsequently, in the case of receiving of payment under the contract of assignment from the creditor 2 should be operated Dt 311 “Current accounts in national currency” Ct 377 at the contractual amount.
The transaction of assignment of claims (receipt of claims) of the creditor 2 should be reflected by the following entry:
- in case of signing the contract of assignment of claims (and based on the certificate of acceptance and transfer, if it is formed) should be reflected accounts receivable – Dt 377 Ct 685 “Settlements with sundry debtors” (accounting under each contract) in the amount under the contract with the creditor 1;
- in the case of payment for assignment of claims should be operated Dt 685 Ct 311;
- in the case of payment receipt from the debtor - both Dt 311 Ct 377 and Dt 377 Ct 745 “Income from assets received free” on the amount of income from transactions (provided that the assignment of claims was with a discount).
It is believed that the income from transactions of assignment of claims should be recognised by the creditor 2 at the time of claims (purchase obligations) from the creditor 1. Accordingly, Dt 377 Ct 685 and Dt 377 Ct 745 should be operated. In our view, this option does not meet the methodological basis of accounting. Because at the time of conclusion of the contract of assignment of claims, the other creditor has a significant risk that the repurchased accounts receivable could be repaid in full.
Accounting for debtor
When the debtor to be notified of conclusion of the agreement of assignment of claims, in this case Dt 631 “Settlements with domestic suppliers” Ct 685 should be operated in accounting. In this case, the debtor is not owed money to the supplier but he/she is obliged to pay them to a new creditor.
