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Entity A makes a 5-year ₹100 cr loan to B, settles a Trust, transfers the loan to the Trust, and the Trust issues participatory notes giving Entity C the right to 90% of all principal/interest payments AS AND WHEN COLLECTED from B. The Trust has no obligation to pay C if no cash is received from B. Under Ind AS 109, Entity A:
ADerecognises a notional amount based on Trust's expected collections from B
BDerecognises the entire ₹100 cr because the loan has been transferred to the Trust
CDerecognises nothing — the loan has not actually been sold to a third party
DDerecognises ₹90 cr of the loan (the pass-through transfer of 90% qualifies as a derecognition transfer because all three pass-through conditions are met)
Answer & Solution
Correct answer: D. Derecognises ₹90 cr of the loan (the pass-through transfer of 90% qualifies as a derecognition transfer because all three pass-through conditions are met)
All three pass-through conditions are met (para 3.2.5): (i) the Trust has no obligation to C unless it collects from B, (ii) the Trust is prohibited from selling/pledging the loan except as security to C, (iii) no material delay in remittance to C. The 90% pass-through is treated as a transfer; A derecognises ₹90 cr and retains ₹10 cr on its books.
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