RECEIVABLES

ACCOUNTS RECEIVABLES

 INITIAL MEASUREMENT – Fair value or original invoice price + transaction price directly attributable to
acquisition
SUBSEQUENT MEASUREMENT – Net realizable value (NRV)

 Long term interest bearing note – FV

Long term NON interest bearing note – PV

 Customer’s credit balances (overpayment) – Current liabilities

 2 methods for accounting for bad debts
1. Allowance method - doubtful only
2. Direct write-off method - already uncollectible/worthless

ALLOWANCE METHOD DIRECT WRITE-OFF METHOD

DOUBTFUL Doubtful account expense xx
Allowance for doubtful accounts xx

WORTHLESS Allowance for doubtful accounts xx Doubtful account expense xx

Accounts receivable xx Accounts receivable xx

RECOVERY Cash xx Doubtful account expense xx

Allowance for doubtful accounts xx Doubtful account expense xx

 CLASSIFICATION OF DOUBTFUL ACCOUNTS IN INCOME STATEMENT

1. Distribution cost – under the charge of sales manager
2. Administrative expense – under the charge of officers / if silent
 METHODS OF ESTIMATING DOUBTFUL ACCOUNTS
o AGING METHOD – fairly presented at NRV (SFP)
o PERCENTAGE OF ACCOUNTS RECEIVABLE METHOD – AR at NRV (SFP)
o PERCENTAGE OF SALES METHOD – proper matching (SCI)
 Bad debt expense
o BS method = % x AR
o IS method = % x IS

AR - TRADE ALLOWANCE FOR BAD DEBTS

Beginning balance Collections Write-off Beginning balance
Credit sales Sales returns allowance Bad debt expense
Dishonoured notes Sales discount Recovery
Recovery Write-off Ending balance
Sales discount lost Settlement in notes
Factored accounts
Recovery not included in PROVISIONS
collection
Beginning balance
Ending balance Interest expense
Additional provision
Ending balance

 Accounts receivable
(allowance for bad debts)
(allowance for sales returns)
(allowance for sales discount)
Net realizable value
 Initial amount recognized
NOTES RECEIVABLES - Principal collection

 INITIALLY – present value +/- amortized disc/ (premium)

 SUBSEQUENTLY – amortized cost using EIR
o SHORT TERM NOTES RECEIVABLE – face amount - impairment/ BD
 Initial amount < principal amount : discount +
AMORITZED COST
Initial amount > principal amount: premium –
 NON INTEREST BEARING NOTE
o Downpayment xx
Instalments => periodic collection X PV of OA
PV of note xx
Lump sum => FV X PV of 1
Sales price xx

o Face xx
PV of note xx
Disc. On NR xx

o Interest income = CA of note x EIR%

o AC/CV of note
a. Face xx
Discount xx
AC/CV xx

b. PV xx
Amort. of disc xx
AC/CV xx

LOANS RECEIVABLES Face value XX

+ DOC XX
 INTIALLY – FV + TC directly attributable to acquisition - OF (XX)
 SUBSEQUENTLY – amortization cost (using EFF method) ICV of LR XX
 Direct origination fees (DOC) offset directly against Origination fees (OF) received
o OF > DOC : unearned interest income ; increase in interest income
o OF < DOC : direct origination cost ; decrease in interest income
o

RECEIVABLE SHORTCUTS Gross AR, end XX

AMORTZATION COST = ICV 1.ER% - interest - allowance (XX)
Interest income = ICV X ER% - provisions (XX)
LR @ AC XX

CV or receivables xx
- PV if FCF/ Restructured receivables (xx)
IMPAIREMENT LOSS xx
RECEIVABLE FINANCING

 PLEDGING (borrowing) – disclosure in NOTES TO FS; General

 ASSIGNMENT( borrowing) – more formal type of pleding ; specific
 FACTORING (borrowing/ sale) – AR
o Transfers ownership
o Factor assumes responsibility
o Without recourse; notification basis
 DISCOUNTING (borrowing/ sale) – notes receivable
o With recourse: endorser shall pay endorse if the maker dishonors role
o Without recourse: endorser avoids future liability even maker refuses to pay on
maturity date
INVENTORIES

 it is ownership that determines inventory onclusion/exclusion