RECEIVABLES

• Receivables


  Financial assets that represent a contractual right to receive cash or another financial asset from another entity
• Accounts Receivable


  Open accounts arising from sale of goods and services in the ordinary course of business and not supported by promissory notes
• Receivables include


  • Amounts collectible from customers
  • Accrued revenues
  • Other items such as loans and advances to officers, affiliated companies, customers or other parties, suppliers, insurance companies, and other non-recurring transactions
• Classification of receivables as to source

  • Trade receivables
  • Non-trade receivables
• Trade receivables


  Claims arising from sale of goods or services in the normal source of business
• Non-trade receivables


  Claims arising from sources other than from sale of goods or services in the normal course of business, supported by formal promises to pay in the form of notes
• Customer's credit balances


  Credit balances in accounts receivable resulting from overpayments, returns and allowances, and advance payments from customers
• Initial measurement of accounts receivable


  Recognised initially at fair value plus transaction costs directly attributable to the acquisition
• Subsequent measurement of accounts receivable


  Measured at amortized cost
• Normal operating cycle


  The period required for cash to be converted into inventories through purchase and production, inventories into receivables through sale, and receivables back into cash or cash equivalents through collection
• Initial recognition (IFRS 9)

  An entity shall recognise a financial asset in its statement of financial position when and only when, the entity becomes a party to the contractual provision of the instrument
• Methods of recognition (timing) of cash discounts

  • Gross price
  • Net price
  • Allowance
• Trade discounts


  Also known as volume or quantity discounts, are means of converting a catalog list price to the invoice price, not recognised for financial accounting purposes
• Cash discounts


  Sales discounts from the seller's point of view, are reductions from the sales price as an inducement for prompt payment of an account
• Methods of accounting for bad debts

  • Allowance method
  • Direct write-off method
• Promissory note


  An unconditional written agreement to pay to a bearer or to the order of the payee a certain sum of money on a specific or determinable date
• Time draft


  A written order (made by the drawer), addressed to the drawee to pay a certain sum of money on a specific or determinable date
• Dishonored notes


  Called when a promissory note matures and is not paid
• Initial measurement of notes

  Shall be measured initially at present value
• Amortized cost


  Amount at which the note receivable is measured initially, minus principal repayment, plus or minus cumulative amortization of any difference between the initial carrying amount and the principal maturity amount, minus reduction for impairment or uncollectibility
• Interest bearing note receivable


  A note or draft that provides for the payment of interest for the period between the issuance date and the due date
• Non-interest bearing note receivable

  When a non-interest bearing note is exchanged solely for cash and no other rights or privileges are exchanged, the PV of the note on the date is received is equal to the cash proceeds exchanged
• Premium and discount amortization

  When a note bears an interest rate that is significantly different from prevailing interest rate for similar notes, or when the FV of the note is significantly different from the MV of the consideration given up in exchange for the note, the interest rate stated on its face is considered to be unrealistic
• The excess of the FV of the note over its PV is credited to DISCOUNT on notes receivable
• The excess of the PV of the note over its FV is charged to PREMIUM on notes receivable
• The discount or premium is amortized to interest revenue over the term of the note using the effective interest method
• Premium on notes receivable

  The excess of the PV of the note over its FV is charged to
• Amortization of discount/premium


  The discount or premium is amortized to interest revenue over the term of the note using the effective interest method
• Unamortized discount is deducted from the ledger balance of the Notes Receivable, and any unamortized premium is added to the balance of the Notes Receivable, to arrive at the amortized cost to be presented in the financial position
• Notes Receivable xx Less: Discount on NR xx Amortized Cost xx Notes Receivable xx Add: Premium on NR xx Amortized Cost xx
• Amortization of discount


  Discount on Notes Receivable xx Interest Revenue xx
• Amortization of premium


  Interest Revenue xx Premium on Notes Receivable xx
• Non-interest bearing notes receivable

  Use Table 2 - Present Value of Single Payment (Robles-Empleo book)
• Non-interest bearing installment Notes Receivable

  Use Table 4 - Present Value of an Ordinary Annuity (Robles-Empleo book)
• Notes Receivable denominated in a foreign currency should be translated to local currency at the exchange rate as of the end of the reporting period
• Impairment of Accounts Receivable

  Some receivables will prove uncollectible, such that an amount of accounts or notes receivable must be recognized as expense in profit or loss. This is called Impairment Loss or Bad Debts Expense.
• Direct write-off method


  Recognizes impairment loss or bad debts expense by crediting directly the receivables account
• A 12-month expected credit loss is recognized
• The portion of the lifetime expected credit loss from default events that are possible within 12 months after the reporting period is recognized
• Stage 2


  Covers debt instruments that have declined significantly in credit quality since initial recognition but do not have objective evidence of impairment. A lifetime expected credit loss is recognized. There is a rebuttable presumption that there is a significant increase in credit risk if the contractual payments are more than 30 days past due.