Lecture Note - Receivables Sy 2014-2015
Lecture Note - Receivables Sy 2014-2015
Lecture Note - Receivables Sy 2014-2015
RECEIVABLES
-financial assets that
represent a contractual right to receive cash or
another financial asset from another entity.
Classification
As to Source
1. Trade receivable - claims arising from sale of goods or services
in the normal course of business
2. Non-trade receivables - receivable other than trade
receivables
* Because of the application of the normal operating cycle,
trade receivables are generally classified as current assets.
Normal operating cycle of an entity is the time between the
the acquisition of assets for processing and their realization
in cash or cash equivalents. Meaning, it is the period required
for cash to be converted into inventories through purchase
and production, inventories into receivable through sale,
and receivable back into cash or cash equivalents through
collections.
* where the normal operating cycle of the business extends
beyond twelve months because of long term credit, as in
the case of certain installment receivable (e.g., installment
sale for household appliances), in which such accounts are
an integral part of working capital, it is proper to classify the
receivable as current assets; however, the amount or estimate
thereof not realizable within twelve months should be disclosed.
*non-trade receivables are classied as current if they are reasonably
expected to be realized in cash within twelve months from the
date of balance sheet, regardless of or notwithstanding the
length of operating cycle. If not realized within twelve months,
these are classified as non-current assets.
As to Timing of Collection
1. Current receivable
2. Non-current receivable
76,950.00
Another method in recording credit sales (aside from gross and net method)
c. Allowance method:
Using the illustration above, below are the entries using the allowance method
Accounts Receivable
78,950.00 *
Allowance for sales discount
Sales
Cash
1,539.00 **
75,411.00
2,000.00
*AR plus 2,000 freight paid by the shipper but should be paid by the buyer since FOB shi
**2% of credit sales, 76,950
77,411.00
1,539.00
78,950.00
*
*
1,539.00
78,950.00
Other clarifications
accounts written off included in the balance per aging should be deducted since it is written off, there
per aging, "more than one year" age correspond to 100% estimated uncollectible even such is not ind
he seller.
76,950.00
collection beyond
Subsequent measurement:
Measured at amortized cost
> for interest beaing note, subsequent to the date of the note, the present value is
face value plus accrued interest
Additional Note:
> When a non-interest bearing note is exchanged solely for cash and no other rights and privilege
the present value of the note on the date it is received, which is its amortized cost, is equal to t
proceeds exchanged.
> If a non-interest bearing note is exchanged for property, goods or services, the present value o
on the date it is received is the fair market value of the property, goods or services or the fair m
value of the note, whichever is more clearly determinable.
Sample problem related to impairment loss
Jon, one of Sonic Company's credit customers, is experiencing financial difficulties and a downw
in its financial performance. The firm is unable to service its debt and as result has missed the p
of this note and accured interest with Sonic Company. The principal amount of the note is P500,
is already due) with annual interest of 10% payable annually. Accrued interest balance at Decem
is P50,000. Jon management has negotiated a modification of its debt terms with Sonic Compan
Sonic Company agreed to the following new terms:
> Forgive the accrued interest at December 31, 2014
> Extend the payment of the principal for two years
> Reduce the interest rate (payable annually) to 8%
How much impairment loss should be recognized by Sonic Company on December 31, 2014?
Answer:
Solution:
67,380.00
PV of the note:
PV of principal
PV of interest
carrying value
impairment loss
413,200.00 *
69,420.00 **
482,620.00
550,000.00
(67,380.00)