Sales accounting
Requirement 1:
Transfer Provision 1: The bank has to obtain permission from UpBeat if it decides to sell/pledge the accounts receivable, which UpBeat would not unreasonably withhold.
It is fair for Upbeat to make the bank agree to obtain permission from UpBeat if it decides to sell/pledge the accounts receivable as long as UpBeat does not unreasonably withhold. UpBeat has no right to constrain the transferee from selling or pledging their assets and cannot make it impossible for the transferee to sell the asset. (860-10-40-18)
b. A requirement to obtain the transferor's permission to sell or pledge that is not to be unreasonably withheld
Transfer Provision 2: UpBeat has the option to repurchase the accounts receivable at a fixed price if it obtains sufficient liquidity from new investors or other sources.
This provision would preclude sale accounting. UpBeat would maintain too much control over the asset if they had the ability to decide when and if at a fixed price they were going to repurchase the asset. Provision two sounds closer to secured borrowing over sale accounting. UpBeat wants to maintain control and the ability to repurchase at a later date, but does not want the obligation to repurchase at a later date with interest attached that secured borrowing would mean. (860-10-40-24)
Requirement 2:
If both provisions were cancelled then UpBeat would be able to consider the sale of the accounts receivable to the bank under sales accounting. The only condition that would change this is if the cancelation of provisions went against the definition of what is acceptable when considering sale accounting.
Transfer Provision 1: The bank has to obtain permission from UpBeat if it decides to sell/pledge the accounts receivable, which UpBeat would not unreasonably withhold.
It is fair for Upbeat to make the bank agree to obtain permission from UpBeat if it decides to sell/pledge the accounts receivable as long as UpBeat does not unreasonably withhold. UpBeat has no right to constrain the transferee from selling or pledging their assets and cannot make it impossible for the transferee to sell the asset. (860-10-40-18)
b. A requirement to obtain the transferor's permission to sell or pledge that is not to be unreasonably withheld
Transfer Provision 2: UpBeat has the option to repurchase the accounts receivable at a fixed price if it obtains sufficient liquidity from new investors or other sources.
This provision would preclude sale accounting. UpBeat would maintain too much control over the asset if they had the ability to decide when and if at a fixed price they were going to repurchase the asset. Provision two sounds closer to secured borrowing over sale accounting. UpBeat wants to maintain control and the ability to repurchase at a later date, but does not want the obligation to repurchase at a later date with interest attached that secured borrowing would mean. (860-10-40-24)
Requirement 2:
If both provisions were cancelled then UpBeat would be able to consider the sale of the accounts receivable to the bank under sales accounting. The only condition that would change this is if the cancelation of provisions went against the definition of what is acceptable when considering sale accounting.