RECEIVABLES

• Receivable financing is the capability of an entity to generate cash out of its receivables
• Receivable financing can arise on secured borrowings and sale of receivable
• Secured borrowing undermines pledging and assignment. On the other hand, sale of receivable pertains to factoring and discounting
• Under the pledging of AR, all ar are pledged as collateral or security for a loan. This is also known as general assignment of ar or hypothecation of accounts receivable because all ar serve as collateral security for the loan.
• The accounting treatment for pledging only requires for note disclosure. They are not derecognized nor seperated from other receivables.
• Assignment of ar is a formal type of pledging of ar. This is also known as specific assgnment.
• For assignment of ar, a journal entry is needed to specifically identify the assigned receivables from other receivables
• The assignment may be done either on a non-notification basis or on a notification basis.
• Assigned receivables are presented in the SFP as regular receivables. However, the equity in the assigned accounts shall be disclosed in the notes.
• AR - assigned, end xx

  Less: related liab bal. xx

  Equity in assigned acc xx
• Factoring of ar refers to the sale of ar to a factor (i.e., financial institution) on a without recourse basis
• Net SP xx

  Less: CA of AR xx

  Gain (loss) on factoring xx

  
  

  * NSP = Gross AR - Factoring fees and charges
• Net selling price is not necessarily equal to the amount of cash received from the factoring especially when the factor withholds a certain amount as a protection against customer returns, allowances, and other adjustments.
• Net SP xx

  Less: Factor holdback xx

  Cash received from factoring xx
• Cash

  ADA

  Loss on factoring

  Receivable from factor

  AR

  Gain on factoring
• Discounting of NR refers to the sale of note to a third party
• S1: An entity shall recognize a loss allowance for ECL on financial assets measured at amortized cost.

  S2: An entity shall measure the loss allowance for a financial instrument at an amount equal to the lifetime ECL if the credit risk on the financial instrument has decreased significantly since initial recognition.

  Only Statement 1 is correct.
• CA of the long-term receivable

  Less: PV of expected future cash flows at the date of impairment testing

  Impairment loss
• True or false.

  The PV of expected future cash flows at the date of impairment testing shall be discounted using the new EIR.

  
  

  False.
• For a LT receivable issued at face amount:

  Outstanding principal amount at date of impairment testing xx

  Add: Unpaid interest (only if recognized by the entity) xx

  CA of the LT receivable xx
• For a LT receivable issued with premium or discount:

  PV at date of impairment testing xx

  Add: Unpaid interest (only if recognized by the entity) xx

  CA of the long-term receivable xx
• JE for date of impairment testing:

  Impairment loss xx

  Interest rec xx

  Allow. for impairment xx
• JE for date of amortization of impairment:

  Allow. impairment xx

  Interest inc xx
• Under the first stage of impairment, the debt instruments with low credit risk or those that have not declined significantly in credit quality since initial recognition. The recognition of impairment is a 12 month ecl and the computation base of interest income is the face amount.
• True or false.

  Both stages 2 and 3 recognizes impairment at lifetime expected credit loss.

  True.
• Stage 2 - debt instruments that have declined significantly in credit quality since initial recognition but do not have objective evidence of impairment.
• Stage 2 - debt instruments that have declined significantly in credit quality since initial recognition but do not have objective evidence of impairment.
• Stage 3 - debt instruments that have objective evidence of impairment at the reporting date.
• S1: The basis of interest income under stage 2 shall be the face amount.

  S2: The basis of interest income under stage 3 shall be the net CA.

  Both statements are correct.
• Outstanding face amount xx

  Less: Allowance for loan impairment (xx)

  Net CA xx