Practice prompt · Q:financial-reporting-environment-and-framework/derecognition-continuing-involvement-001

Analyze derecognition with continuing involvement

Check a transfer's terms before deciding which recorded balances to remove.

Updated Sep 6, 2026 Review due Nov 7, 2026

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Linden Peak Instruments transfers production equipment under a contract labeled "sale." It receives cash, agrees to repurchase the equipment under specified conditions, and promises maintenance services. Before deciding which recorded balances to remove, what analysis is needed?

Choose the best answer. a Apply the removal requirements to the transfer and retained terms, then determine which balances leave and which remain. b Remove every related balance because the contract title says sale. c Keep the entire equipment balance forever because any service obligation prevents all derecognition. d Recognize cash and defer all other analysis until the repurchase term expires.

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Answer: a

Choice a. Derecognition means removing a recorded asset or liability. The repurchase and service terms need analysis under the applicable requirements. The sale label does not prove full removal, but a remaining service duty does not automatically require keeping the entire equipment balance either.