ASC 860-20-50-5 requires reporting entities to present separately in the income statement or disclose in the footnotes the aggregate amount of gains or losses on sales of loans or trade receivables (including adjustments to record loans held for sale at the lower of cost or fair value) for each period presented. In certain instances, the reporting entity may find it appropriate to integrate this information into the disclosures required for loans and trade receivables by ASC 310, Receivables. See FSP 8.3 for more information about those disclosure requirements.

Figure FSP 22-3 illustrates a sample disclosure about periodic sales of participating interests in certain loans to institutional investors. Disclosures of loans are addressed in FSP 8. For simplicity, this sample disclosure omits any required comparative amounts.

Figure FSP 22-3
Sample disclosure—sales of loans (transfers of participating interests)

During 20X7, the Company sold participations in certain commercial and construction development loans in transactions negotiated with various institutional investors. In each case, the Company retains servicing responsibilities for the underlying loan as well as a participating interest in the loan. Interests sold and retained are pari passu, and entitle each holder (including the Company) to all cash flows received from the underlying loan proportionate to its interest, net of the servicing fee. The Company receives annual servicing fees approximating x% (for commercial loans) and x% (for construction development loans) of the outstanding loan balance owned by others.

In 20X7, the Company recognized pretax gains of $xx.x million on sales of participations in commercial loans and $x.x million on similar sales involving construction development loans.

Figure FSP 22-4 illustrates a sample disclosure about sales of trade receivables to a multi-seller commercial paper conduit under a revolving financing facility. For simplicity, this sample disclosure omits any required comparative amounts.

Figure FSP 22-4
Sample disclosure—sales of trade receivables (under a revolving financing facility with a multi-seller commercial paper conduit)

In 20X7, the Company entered into a revolving accounts receivable financing arrangement with a multi-seller commercial paper conduit managed by a major domestic bank. The facility, whose maximum capacity is $xxx million, is scheduled to expire in October 20X8 unless renewed by the mutual consent of the parties.

Under the arrangement, the Company may sell eligible short-term trade receivables to the conduit on a monthly basis in exchange for cash and a subordinated interest. The transfers are reported as sales in the accompanying financial statements. The subordinated interest, a receivable from the conduit, is referred to as the “deferred purchase price (DPP).” Generally, at the transfer date, the Company receives cash equal to approximately 90% of the value of the sold receivables. The Company continues to service the receivables sold in exchange for a fee.

The DPP is carried at fair value, which is remeasured monthly to take into account activity during the period (the Company’s interest in newly-transferred receivables and collections on previously transferred receivables attributable to the DPP), as well as changes in estimates of future interest rates and anticipated credit losses. Changes in the DPP’s value attributable to fluctuations in interest rates and revised estimates of anticipated credit losses have been and are expected to be immaterial, as the underlying receivables are short-term and of high credit quality. The valuation estimate of the DPP falls within Level 3 of the fair value hierarchy.

During 20X7, the Company sold receivables having an aggregate face value of $xx million to the conduit in exchange for cash proceeds of $xx million, of which $xx million was funded by re-invested collections. Losses incurred on these sales during the year amounted to $x.x million, and are included in “[line item]” in the accompanying statements of income. Related servicing fees for the period were immaterial.

At December 31, 20X7, the outstanding principal amount of receivables sold under this facility amounted to $xx million. The carrying amount of the related DPP receivable in the accompanying balance sheet was $x.x million and is classified within “[line item].”