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Treatment of 'Girvi'

 
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Treatment of 'Girvi'
kamranACA
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#2
08-20-2009, 04:35 AM
Dear,

It's not a lease transaction since no return is implicit.

At the end of use term, asset (and not cash or cash equivalent has to be returned) so there appears no rqeuirement of treating 10M as financial liability. Even if treated as financial liability it does not rqeuire discounting for fair value calculation as the period of use is just 6 months.

However, the entity paying 10M may report it as financial asset.

In my view, this payment will appear as security deposit (asset) in one entity's books and security deposit (liability) in others.

There will be no entry for derecognition / recognition of asset on both sides. Accordingly no measurment issue arise as well.

Legal and statutory validity of the transaction is questionable. Although the use of asset can cause flowing of economic benefits to one entity and in return cash deposited can do same thing to the other (if invested properly) but some explicit agreement should be made to define limits, covenants, and conditions along with results of the transaction.

Written agreement (enabling other entity to invest and earn 10M deposit) is also required to avoid invoking of section 226 of companies ordinance 1984.

This is as per limited info you provided.


Regards,
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Messages In This Thread
Treatment of 'Girvi' - by nabeelanwer - 08-20-2009, 04:02 AM
[No subject] - by kamranACA - 08-20-2009, 04:35 AM
[No subject] - by nabeelanwer - 08-20-2009, 02:27 PM
[No subject] - by kamranACA - 08-21-2009, 03:44 AM

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