Hi,
A sugar industry recognized trade receivable from growers against sale of agriculture store items which will be settled against purchase of sugarcane. A non-financial assets. Cash and cash equivalents will not received.
What we off sett this non-financial assets with financial liability ?
Offsetting a non-financial asset and a financial liability
Re: Offsetting a non-financial asset and a financial liability
Sorry but it's not clear to me what are the items that you want to offset. Trade receivables and ...?
Re: Offsetting a non-financial asset and a financial liability
Certain companies engaged in manufacture and sale of sugar and allied products and sugarcane is a raw material.
Financial institution not provide loan to individual growers and required guarantee.
Sugar mills given guarantee to the financial institutions for payments of loan amount.
Process:
1. Bank provide loan to the individual growers on behalf of the sugar mills.
2. Sugar mills provided agriculture store items to the growers and recognized trade receivable and revenue.
3.As sugar mills hand over the agriculture store items to growers, growers intimate to the banks, debit our account and transfer such loan amount to the sugar mills account.
4. Sugar mills recognized such loan amount as payable to banks on behalf of growers
5. As growers sale sugarcane to the sugar mills, sugar mills deduct the amount of loan at the time of payment to growers against sugarcane and transfer such amount to the bank on behalf of growers.
6. Transaction closed.
In the books of sugar mills:
Trade receivables are off set by an amount 'payable to bank on behalf of growers'
General entries:
Trade receivables DR
Revenue Cr
COS Dr
Inventory Cr
Bank Dr
Payable to bank on behalf of growers Cr
After purchase of sugarcane from growers:
Payable to bank on behalf of growers Dr (cash transfer to the bank on behalf of growers - financial liability)
Trade receivables Cr (Adjusted against sugarcane purchase)
Financial institution not provide loan to individual growers and required guarantee.
Sugar mills given guarantee to the financial institutions for payments of loan amount.
Process:
1. Bank provide loan to the individual growers on behalf of the sugar mills.
2. Sugar mills provided agriculture store items to the growers and recognized trade receivable and revenue.
3.As sugar mills hand over the agriculture store items to growers, growers intimate to the banks, debit our account and transfer such loan amount to the sugar mills account.
4. Sugar mills recognized such loan amount as payable to banks on behalf of growers
5. As growers sale sugarcane to the sugar mills, sugar mills deduct the amount of loan at the time of payment to growers against sugarcane and transfer such amount to the bank on behalf of growers.
6. Transaction closed.
In the books of sugar mills:
Trade receivables are off set by an amount 'payable to bank on behalf of growers'
General entries:
Trade receivables DR
Revenue Cr
COS Dr
Inventory Cr
Bank Dr
Payable to bank on behalf of growers Cr
After purchase of sugarcane from growers:
Payable to bank on behalf of growers Dr (cash transfer to the bank on behalf of growers - financial liability)
Trade receivables Cr (Adjusted against sugarcane purchase)
Re: Offsetting a non-financial asset and a financial liability
Sir, i am still awaiting your valuable opinion.
Re: Offsetting a non-financial asset and a financial liability
Everyone is welcome to chime in.
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JakobLavrod
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Re: Offsetting a non-financial asset and a financial liability
This is not really my area of expertise, but it sort of looks a bit like a barter transaction as described here. Maybe this can be of help:
https://www.cpdbox.com/012-barter-transactions-ifrs/
https://www.cpdbox.com/012-barter-transactions-ifrs/
IFRS 9 Impairment Specialist
Risk Control at Svenska Handelsbanken
Risk Control at Svenska Handelsbanken
Re: Offsetting a non-financial asset and a financial liability
I'm sorry but I'm finding it difficult to understand the scenario.
Re: Offsetting a non-financial asset and a financial liability
This scenario is indeed not clear at all. Please confirm if the scenario is as follows:
A grower cannot obtain a loan from a bank on its own, so the mill provides a guarantee to the bank. The loan proceeds will go directly to the grower, but the mill will repay the loan to the bank on behalf of the grower. In order to settle the amounts paid to the bank on behalf of the growers, the mill will reduce (debit) the trade payables that have been recognised for the purchase of sugar cane from the grower.
Your question is whether in the books of the mill the amount owed by the growers for the loan repayments can be offset with the trade payables.
Is that it?
A grower cannot obtain a loan from a bank on its own, so the mill provides a guarantee to the bank. The loan proceeds will go directly to the grower, but the mill will repay the loan to the bank on behalf of the grower. In order to settle the amounts paid to the bank on behalf of the growers, the mill will reduce (debit) the trade payables that have been recognised for the purchase of sugar cane from the grower.
Your question is whether in the books of the mill the amount owed by the growers for the loan repayments can be offset with the trade payables.
Is that it?