RECEIVABLES

FOR AGING OF ACCOUNTS RECEIVABLES PROBLEMS

- the aging should be based on and should agree with the subsidiary ledger (SL)

- the aging should be adjusted first with all possible adjustments before a required allowance is computed. This includes
a. adjustment both to general ledger (GL) and SL
- additional write-offs accounts
- unrecorded sale/over recorded sale; unrecorded collections
- credit balance in AR (adjusted to advances from customers)
b. adjustment to SL only (no adjusting entries required, but aging schedule maybe adjusted)
- sales/collections already recorded in GL but not in SL
- posting errors
c. adjustments to GL only (will not affect aging schedule anymore)
- sales/collections not yet recorded in GL but already posted in SL.

- the adjusted balance in SL shall ultimately be the correct/adjusted balance of the AR gross of required allowance.

- if the GL ultimately does not coincide to the SL, an additional adjustment should be in place to correct the GL to equal
the adjusted balance of SL. The adjustment should be credited or debited to SALES account.

- to compute the bad debt expense for the period, the adjusted balance per computation is compared to unadjusted
balance. (do not forget to consider write-off of AR, recoveries of previously written-off accounts, and interim bad debts
provisions)

FOR LOANS RECEIVABLE PROBLEMS (SIMILAR TO FINANCIAL ASSET AT AMORTIZED COST)

Initial Measurement of loans receivable shall be at FMV, which shall be the net initial investments or the net
cash given- up on the loan transaction. More specifically, the initial investment shall be:
PRINCIPAL AMOUNT OF THE LOAN xx
ADD : ORIGINATION COSTS* xx
LESS: ORIGINATION FEES** (xx)
FMV OF LOAN/INITIAL INVESTMENT xx
*costs that are directly attributed to the loan transactions such as broker’s fee, commissions, professional fees
(fees given to lawyer for drafting debt agreements or to accountants for assessment of assets collateral to loans)
** costs chargeable to the debtor as per the debt agreement. It can be amount higher or lower than the actual
origination costs incurred.

Balance Sheet Measurement. Loans receivable shall be measured at balance sheet date at amortized cost,
which shall be:
INITIAL AMOUNT RECOGNIZED/FMV @ INITIAL RECOGNITION xx
LESS: PRINCIPAL COLLECTIONS (xx)
LESS: AMORTIZATION OF PREMIUM or (xx)
ADD: AMORTIZATION OF DISCOUNT xx
LESS: IMPAIRMENT OF LOAN (if any)* (xx)
AMORTIZED COST xx

*impairment loss of loans receivable

CV of Loans Receivable xx
Less: PV of expected cash to be recovered using the
ORIGINAL EFFECTIVE INTEREST RATE (xx)
Impairment loss/Bad Debt Expense xx

Note: carrying value of Loans Receivable include accrued interest as general rule
INVENTORY

FOR CUT-OFF PROBLEMS

- determine the validity of the SALES or PURCHASE TRANSACTIONS*
- determine whether sales (receivable) or purchase (payable) has been recorded (related sales/purchase invoice)
- determine whether inventories were INCLUDED or EXCLUDED**
If it is a valid sale, receivable shall be recorded, inventory should be excluded
If it is not a valid sale, receivable should not be recorded, inventory should be included
If it is a valid purchase, payable should be recorded, inventory should be included
If it is not a valid purchase, payable should not be recorded, inventory should be included

*in considering the validity of Sale or Purchase Transactions, consider the ff.:
As a rule of thumb assumption, a SALE is valid upon delivery and PURCHASE is valid upon receipt.

Exceptions to the rule of thumb assumption:

1. GOODS IN TRANSIT
A. Fob shipping point - include as inventory of the buyer (plus freight in)
B. Fob destination - include as inventory of seller (exclude freight out)
C. Cost of Insurance and Freight (CIF) – include as inventory of buyer upon delivery to carrier (plus cost of CIF)
D. Free Alongside (FAS) the vessel include as inventory of buyer upon possession of the carrier (exclude freight
cost to vessel, include freight cost from vessel to customer)

2. SPECIAL SALE/PURCHASE AGREEMENT

I – with delivery/receipt but not yet valid purchase
1. When seller retains an obligation for unsatisfactory performance not covered by normal warranty
provisions (include as inventory of the seller)
2. When the receipt of revenue from particular sale is contingent on the derivation of revenue by the
buyer from its sale of goods.
3. When the goods are ship subject to installation and installation is a significant part of the contract
which has not been completed by the seller.
4. When the buyer has the right to rescind the purchase for a reason specified in the sales contract and
entity is uncertain in the probability of return.
5. Inventory financing/park sale/product financing (include as inventory of seller)
II – without delivery/receipt but is already a valid sale/purchase
1. Special order of customer goods
2. Bill and hold agreement
Note: a mere segregation of goods does not exclude the same from the seller’s inventory, unless
the problem identified that sale is covered by special sale agreement.

**if the problem did not indicate whether goods under consideration has been included or excluded from the count, the
ff. assumptions are to be made:
1. All deliveries (on sale) made on or before the count date are excluded from the count, all deliveries made
after the count date are included from the count, unless otherwise stated by the problem.
2. All receipts (on purchases) of goods on or before the count date shall be included from the count, all receipts
after the count are excluded from the count, unless otherwise stated by the problem.
FOR INVENTORY ESTIMATION PROBLEMS
1. GROSS PROFIT METHOD
Cost of goods available for sale (actual)* xx
Less: cost of sales (estimate)** (xx)
Estimated Invty-end xx

*COGAS is actual, that is consider all items included in the computation of COGAS (invty-beg + purchases +
freight in – purchase discounts – purchase returns and allowances + department transfer in –
department transfer out – abnormal spoilage, breakage, shrinkage)
** COS is estimated by
1. Gross sales x cost rate (if GP is based on sales)
2. Gross sales/selling price rate (if GP is based on cost)
NOTE: for the purpose of estimating COS, assume that all sales were made under the normal GP rate, thus when
computing gross sales:
- ignore discount to customers
- add back special discounts to Gross Sales (e.g. employee discounts)
- deduct sales return from gross sales
- ignore sales allowances (deduct if sales returns and allowances as single account is provided)
- normal spoilage, breakage, shoplifting losses shall be added back to gross sales at selling price

2. RETAIL METHOD
Cost of goods available for sale (at retail)* xx
Less: COS @retail** (xx)
Estimated Ending Invty @ retail xx
Multiply by Cost rate (LCA or Ave)*** x%
Estimated EI @ cost xx

COST RETAIL
Beg – inventory xx xx
Add: purchases xx xx
Freight in xx
Less: purchase allowance (xx)
Purchase discount (xx)
Purchase returns (xx) (xx)
Add: department transfer in (debit) xx xx
Less: department transfer out (credit) (xx) (xx)
Less: abnormal spoilage, breakage, shrinkage (xx) (xx)
Add: mark ups cancellation net of cancellations xx
COGAS under LCA (conservative)*** xx / xx %
or
Less: mark downs net of cancellation (xx)
COGAS under AVE*** xx / xx %

Gross sales xx
Less: sales return (xx)
Add: special discounts xx
Normal spoilage, shrinkage, breakage, shoplifting xx
Sales / cost of sales @ retail** xx

NOTE: for FIFO AVE., simply disregard in the computation the cost % the beginning inventories:
COST % = COGAS @ cost – BI @ cost or net purchase @ cost
COGAS @retail – BI @ retail net purchases @ retail
FOR INVENTORY VALUATION PROBLEMS
Inventories shall be valued at LOWER OF COST or NET REALIZABLE VALUE

A. COST shall be measured through

1. FIFO PERIODIC
2. FIFO PERPETUAL
3. AVERAGAE PERIODIC (weighted average)
4. AVERAGE PERPETUAL (moving average)
B. NRV shall be
1. FINISHED GOODS / MERCHANDISE INVENTORY
Estimated selling price less estimated cost to sell
2. WIP INVENTORY
Est. selling price less est. cost to complete less est. cost to sell
3. RAW MATERIALS AND SUPPLIES
The NRV of raw materials shall be the Current Replacement Cost (Current Purchase Price). The same
shall be written down only if the FGs to which they are related to are also written down.