If Supreme Healthcare sells its receivables to the SPE, its consolidated financial results will least likely show:
- a higher revenue for 2018.
- the same cash balance at 31 December 2018.
- the same accounts receivable balance at 31 December 2018.
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Variable interest entity or Special purpose entity is an enterprise that is created to accommodate specific needs of the specific entity. It is mainly used for securitize receivables. The sponsoring entity frequently transfer assets to the SPE, obtains the right to use the assets held by SPE.
option B is wrong if supreme healthcare sells its receivables to SPE then, its consolidated balance sheet will report higher cash balance.
Option C is wrong because the consolidated balance sheet has the same amount of accounts receivable & it look exactly the same as if it borrowed directly against the receivables.
PLEASE REFER EXAMPLE 11 IN THE CORE
Option A is correct the revenue will not be higher
but the questions says “least likely”