A financial institution involved in commercial lending makes a short-term loan (for example, 90 days) to a borrower under a long-term credit commitment (for example, 5 years). The financial institution transfers the short-term loan, without recourse, to a third-party purchaser for the remaining term of the loan. The risk of loss relating to the short-term loan is legally transferred to the purchaser, and the financial institution has no contractual obligation to repurchase the shortterm loan. Under the long-term credit commitment, the financial institution may, at the maturity of the short-term loan, relend to the borrower. However, the financial institution may refuse to relend to the borrower based on a current credit evaluation or if any covenant under the long-term commitment is not satisfied. The issue is whether the transfer of the short-term loan should be accounted for as a sale or as a financing. Copyright © 2010, Financial Accounting Standards Board Not for redistributio
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