Problem
Morocco Ltd. is a landscaping service company that follows ASPE. On April 1, Morocco factored $500,000 of accounts receivable with Kenya Finance Corp. on a with recourse basis. The recourse provision has a fair value of $12,000. Under the arrangement, Morocco was to handle disputes concerning service, and Kenya Finance was to make the collections, handle the sales discounts, and absorb the credit losses. Kenya Finance assessed a finance charge of 5% of the total accounts receivable factored and retained an amount equal to 2% of the total receivables to cover sales discounts.
1) Prepare the journal entry required on Morocco's books on April 1.
2) Instead, if Morocco followed IFRS, prepare the journal entry required on Morocco's books on April 1.