RECEIVABLES

OVERVIEW
Accounts receivable – are open accounts from sale of goods and services; customer’s accounts, trade debtors
Definition Financial asset that represents a contractual right to receive cash
Initial – at transaction price
Measurement Subsequent – at net realizable value (net of allow. and
impairment)
Classification either current or non-current
AR – @ NRV
Presentation
DAE – part of administrative Expense

Cash discounts:
1. Gross method – discount is not yet deducted from invoice; CD is only recognized when taken.
2. Net method – recorded net of the highest discount; CD not taken is credited to SD forfeited.
3. Allowance method – AR is recorded at gross while sales are recorded at net of discount.

Contractual Terms should pay the freight actually paid freight Treatment
FOB Shipping point, Freight prepaid Buyer Seller Plus receivables
FOB Shipping point, Freight Collect Buyer Buyer No adjustment
FOB Destination, Freight Prepaid Seller Seller No adjustment
FOB Destination, Freight Collect Seller Buyer Minus receivables
Accounts Receivable
Non-trade receivables: Beg, balance Collections
Advances to officers, directors, SH CA if within 12 months Credit sales Sales Discount
or employees NCA if beyond SD forfeited Sales Return
Notes as payment
Advances to affiliates GR: NCA
Write-off
> 12m – deduction to SHE End, Balance
Subscription Receivable
< 12m – CA
Special deposits GR: NCA Allowance for Doubtful Accounts
Advances to suppliers CA Write-off Beg, Balance
DAE
Supplier’s debit balance CA Recoveries of AR
Accrued income CA End, Balance
Claims Receivable CA

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 Accounts Receivable, gross xx
ADA (xx)
SD (xx)
Freight (xx)
SRA (xx)
Net Realizable Value xx

Special Sales Consideration

Bill and Hold arrangement Sold upon issuance of the bill/invoice
Layaway sales Goods are delivered upon final installment, sold in installments
Goods shipped awaiting instructions Sold upon completion of installments and inspections
Sales on approval Sold upon formal acceptance
Sales to distributors Treated as consigned out to the buyer-consignee
Sales partially paid in advance Sold upon completion of delivery
Subscription sales Sales is recognized over a straight-line basis
Installment sales Exclusive of interest, recognize sale upon delivery of goods
Credit card sales Sold upon purchase by buyer

NOTES RECEIVABLE
- customer accounts supported by formal
promises to pay.
- Initially measured at Fair Value plus DACs.

Dishonored notes – a promissory note that is not paid

at maturity; should be transferred from notes to
accounts receivable account. It shall include:
✓ Face amount
✓ Interest
✓ Other fees and charges.
Interest-bearing Interest-bearing Non-interest
S=E S≠E bearing
Initial Meas Face PV PV
Subsequent Out. FA AC AC
Int. income Face x SIR CV = EIR CV x EIR
Int. rec Face x SIR Face x SIR Face x SIR

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LOANS RECEIVABLE
- a financial asset arising from a loan granted by a financial institution.

Principal Amount xx
Less: Origination Fees received (xx) To record the origination fees received: To record payment of DOC:
Add: Direct Origination Cost (xx) Cash xx Unearned Int. Inc xx
Initial Measurement of LR xx Unearned Int. Inc xx Cash xx

IMPAIRMENT OF LOANS RECEIVABLE

- an entity shall recognize a loss allowance for expected credit loss on financial asset measured at amortized cost.
✓ Debt instrument at AC  Equity instrument at FVPL CA of long-term receivable xx
✓ Debt instrument at FVOCI  Equity instrument at FVOCI Less: PV of expected future CF xx
✓ Loan under PFRS 16  Debt instrument at FVPL Impairment loss xx

Stage 1 Stage 2 Stage 3

✓ DI that has not declined significantly ✓ No objective evidence of impairment ✓ There is already objective evidence of
since recognition. ✓ Int Income is still based on CA impairment
✓ No significant increase in credit risk.
Carrying amount of loan xx Carrying amount of loan xx
Carrying amount of loan xx PV of ECL (xx) PV of ECL (xx)
PV of ECL (xx) Expected lifetime credit loss xx Expected lifetime credit loss xx
Expected lifetime credit loss xx Multiply by probability x%
Already recognized (xx)
Required loss allowance xx
Multiply by probability x% Impairment loss xx
Already recognized (xx)
Impairment loss xx Impairment loss xx

OBJECTIVE EVIDENCE OF IMPAIRMENT

1. Significant financial difficulty of the issuer or obligor
2. Breach of contract, such as a default or delinquency in interest or principal payments
3. The lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that
the lender would not otherwise consider
4. High probability that the borrower will enter bankruptcy or other financial reorganization
5. Measurable decrease in the estimated future cash flows from the financial asset

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RECEIVABLE FINANCING (IFRS 9)
Overview
- the capability of an entity to generate cash out of its receivables.

PLEDGING/HYPOTHECATING OF ACCOUNTS RECEIVABLE

- Collateral only; memo entry but requires disclosure.
- Not derecognized, not separated to AR. Discount is amortized and
charged to interest expense.

ASSIGNMENT OF ACCOUNTS RECEIVABLE

- Loanable amount is % of AR.
- Bank service charge & commission is collected.
- also known as specific assignment
- Assigned AR are presented in SFP as regular receivables. However,
the equity in the assigned is disclosed in the notes.
Non-notification Basis Notification Basis
FACTORING OF ACCOUNTS RECEIVABLE Customers are not informed that
their accounts are assigned.
- sale of accounts receivable to a factor. Customer are notified.
Customers continue to make
payments to the entity.
Factoring with recourse Factoring without recourse
Proceeds Equity
Company guarantees
Company is not liable in case FV of loan xx CA of AR xx
payment in the event the
the customer fails to pay; Less: BSC and Comm (xx) Less: CA or LP (xx)
customer fails to pay; no G/L
outright sale of AR Net proceeds xx Equity on assigned xx
is recognized.
Proceeds G/L on factoring
FV of AR xx SP (NP + Holdback) xx
Less: Service Fee (xx) Less: CA of AR (xx)
Less: Factor’s Holdback (xx) G/L on factoring xx
Less: Interest expense (xx)
G/L on factoring xx

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DISCOUNTING OF ACCOUNTS RECEIVABLE

Discounting without Recourse Basis Discounting with Recourse Basis

Holder is not liable in case the maker Holder is held liable. • Discount rate – discount on the note (not market rate)
fails to pay. The note is essentially sold • Discount period – unexpired portion of the note. [Age
and derecognized. of note – (Date of receivable up to date of discount)]
Proceeds Equity • Interest – use market rate for rate; use age of note for
period)
MV (Principal + Total Interest) xx SP (net proceeds) xx
Discount (MV x DR x DP) (xx) CA of NR (xx)
Net Proceeds xx G/L on discounting xx

DERECOGNITION OF RECEIVABLES
• Contractual right to receive cash expires
• The entity transfers the financial asset ceding its control to some other entity
• Gain or Loss = Net proceeds – Book Value

PRESENTATION
• Presented as one line-item as Trade and Other Receivables under current assets
• Long-term receivables are reported as Long-term investments and or other non-current assets

DISCLOSURES
• Nature of receivables
• Credit risk exposures without taking into account any collaterals
• Information regarding interest rate risk exposures
• Receivable financing as to the nature, the terms/conditions/fair values
• Interest income, accrued interest, and impairment losses.

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