Lute Retail Ltd follows ASPE It transfers 355 000 of its

#1964
Lute Retail Ltd follows ASPE It transfers 355 000 of its

Lute Retail Ltd. follows ASPE. It transfers $355,000 of its accounts receivable to an
independent trust in a securitization transaction on July 11, 2017, receiving 96% of the
receivables balance as proceeds. Lute will continue to manage the customer accounts,
including their collection. Lute estimates this obligation has a liability value of $12,500. In
addition, the agreement includes a recourse provision with an estimated value of $9,900. The
transaction is to be recorded as a sale.

Instructions

(a) Prepare the journal entry on July 11, 2017, for Lute Retail Ltd. to record the securitization of
the receivables.

(b) What effect will the securitization of receivables have on Lute Retail Ltd.'s accounts
receivable turnover? Comment briefly.

(c) Would the treatment of the transaction change if Lute Retail followed IFRS? Compare how
ASPE and IFRS differ in how you determine if the receivables should be derecognized.

Lute Retail Ltd follows ASPE It transfers 355 000 of its

ANSWER
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