Page 1 of 2 | FAR Handouts No.

04

RECEIVABLES
KARIM G. ABITAGO, CPA

RECEIVABLES
KARIM G. ABITAGO, CPA

ADDITIONAL EXERCISE – ACCOUNTING FOR DOUBTFUL ACCOUNTS EXPENSE

1. BADANG COMPANY showed the following information related to the accounts receivable in order to
estimate bad debts through the use of the aging. The credit period of the company is 30 days on the

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average.
Age of Receivables Amount
Under 30 days P 4,000,000

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31-60 days 1,500,000
61 - 90 days 1,000,000
91 -120 days 500,000

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121 -150 days 200,000
151-180 days 100,000
The company based on experience has the following percent of collectability:
Accounts which are overdue for less than 30 days 97 %
Accounts which are overdue 31 - 60 days
Accounts which are overdue 61 - 90 days
Accounts which are overdue 91 -120 days
Accounts which are overdue 121 -150 days
R 90 %
75 %
55 %
30 %
Accounts which are overdue for over 150 days 25 %
PA
REQUIREMENT: What is the carrying value of accounts receivable for balance sheet reporting
purposes?

2. ALDOUS CORP. prepared the following schedule on December 31, 2021 and the uncollectible
accounts experience for the previous five years.
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0-30 days 4,500,000

31-60 days 1,500,000
61-90 days 800,000
91-120 days 200,000
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Over 120 days 100,000

7,100,000

Year-end 0-30 31-60 61-90 91-120 Over

Year receivables days days days days 120 days
2020 7,800,000 3% 9% 17.4% 52.1% 84.1%
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2019 7,500,000 5 8 18.0 49.2 80.3

2018 6,800,000 4 11 19.0 53.7 82.0
2017 6,900,000 4 10 19.8 51.3 78.5
2016 7,200,000 2 11 17.8 49.9 85.2
The unadjusted allowance for bad debts on December 31, 2014 is P300,000. The average rate is
determined by adding all the rates for each category divided by 5.
REQUIREMENT: What is the correct balance of the allowance for bad debts based on the average loss
experience for the last 5 years?

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 Page 2 of 2 | FAR Handouts No. 04

KARIM G. ABITAGO, CPA

RECEIVABLES

ADDITIONAL EXERCISE – EXPECTED CREDIT LOSS MODEL

3. On January 1, 2021, CLAUDE CORP. granted a five-year term loan of P3,000,000 to DEXTER CORP. If there were
no possibility of credit to losses, the coupon rate that CLAUDE would charge the borrower is 10% per annum.
However, because of the borrowers credit rating, CLAUDE estimates that there is a possibility the borrower might
default on the payments and the expected credit losses are estimated at P40,000 per year over the five-year term.
Accordingly, CLAUDE charges the borrower 12% coupon rate to reflect the yield on the instrument to include a
return to cover those credit losses expected when the loan is first recognized.
REQUIREMENTS
1. Compute for the lifetime expected credit loss.

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2. Compute for the 12-month expected credit loss
3. Prepare the journal entry on initial recognition of the loan.
4. Prepare the entry assuming there is no significant deterioration of credit risk for the year ended 2021
5. Prepare the entry assuming there is significant deterioration of credit risk for the year ended 2021.

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REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

www.realexcellenceonline.com.ph REAL EXCELLENCE ONLINE CPA REVIEW
(074) 665 6774 0916 840 0661 admin@reo.com.ph MAY 2022 CPA REVIEW SEASON