Derecognition of a financial asset
When should a financial asset be derecognised?
An entity shall derecognise financial assets when and only when the contractual rights to the cash flows from the financial assets expire or it transfers the financial asset which eventually qualifies for derecognition as per the standard.
An entity transfers a financial asset if, and only if, it either transfers the contractual rights to receive the cash flows of the financial asset, or retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients. When the entity assumes contractual obligation, then the amount need not be paid unless it is collected and the entity has an obligation to remit the cash flows collected without reasonable delay. However, the entity cannot sell or pledge the original asset. The ultimate test is that the entity should have transferred all the risk and rewards of ownership of the financial assets as well as the control of such financial assets.