TRADE & OTHER RECEIVABLES

LECTURE NOTES: 5. The following are normally included in the line item
trade and other receivables’, except
a. Advances to officers and employees
b. Advances to subsidiaries and affiliates
c. Receivables from sale of securities or property
other than inventory.
d. Dividends and interest receivable.

6. Accounts receivable are normally reported at the: 

a. Present value of future cash receipts.
b. Current value plus accrued interest.
c. Expected amount to be received.
d. Current value less expected collection costs.

7. New Corp., which has started operations in the current

year, has the following data relating to accounts
receivable for the year ended December 31, 2016:
1. In accordance with PAS 39, “loans and receivables” are Cash sales P1,000,000
non-derivative financial assets with fixed or Credit sales 5,000,000
determinable payments that are not quoted in an Collections on credit sales 3,000,000
active market other than: Sales returns and allowances on
a. Those for which the holder may not recover credit sales 100,000
substantially all of its initial investment, other than Accounts written off 20,000
because of credit deterioration, which shall be Allowance for doubtful accounts, 12/31
classified as available for sale. (5% of accounts receivable) ?
b. Those that the entity intends to sell immediately or Allowance for sales discounts, 12/31 10,000
in the near term, which shall be classified as held Allowance for sales returns, 12/31 15,000
for trading, and those that the entity upon initial Allowance for freight, 12/31 3,000
recognition designates as at fair value through What is the net realizable value of the accounts
profit or loss. receivable on December 31?
c. Those that the entity upon initial recognition a. P2,708,000 c. P1,758,000
designates as available for sale. b. P1,880,000 d. P1,752,000
d. All of the above
8. On June 9, Seller Corp. sold merchandise with a list
2. In accordance with PFRS 9, loans and receivables can price of P5,000 to Buyer on account. Seller allowed
be measured at amortized cost if trade discounts of 30% and 20%. Credit terms were
a. The asset is held within a business model whose 2/15, n/40 and the sale was made FOB shipping point.
objective is to hold assets in order to collect Seller prepaid P200 of delivery costs for Buyer as an
contractual cash flows. accommodation. On June 25, Seller received from
b. The contractual terms of the financial asset give Buyer a remittance in full payment amounting to
rise on specified dates to cash flows that are solely a. P2,744 c. P2,944
payments of principal and interest on the principal b. P2,940 d. P3,000
amount outstanding.
c. Both a and b. LECTURE NOTES:
d. Either a or b.
Trade and Cash Discounts
3. Which statement is incorrect regarding loans and
receivables? Trade Cash
a. An entity shall recognize loans and receivables on
Objective Generate sales Encourage prompt
its statement of financial position when, and only
payment
when, the entity becomes a party to the
contractual provisions of the instrument. Accounting Not recorded Recorded using
b. Receivables are initially recognized at its fair value separately either Gross or Net
plus transaction costs that are directly attributable method
to the acquisition of the financial assets.
c. Loans and receivables are subsequently measured
at amortized cost using the effective interest Gross and Net method of recording Sales
method.
Gross Net
d. Loans and receivables are required to be classified
as non-current in the statement of financial Cash Deducted from Deducted from
position. discounts sales when granted sales whether
granted or not

4. The category "trade receivables" includes Cash Deducted from Not accounted for
a. Advances to officers and employees. discounts sales (sales separately since
b. Income tax refunds receivable. granted discounts) already deducted
c. Caims against insurance companies for casualties from sales
sustained.
d. Open accounts resulting from short-term Cash Included in sales Reported as other
extensions of credit to customers. discounts income
not (forfeited sales
granted discounts)
Accounting for Freight

Who should pay? Who actually paid?

Buyer FOB shipping point Freight collect

Seller FOB destination Freight prepaid

Deduct FOB destination Freight collect

from AR

Add to AR FOB shipping point Freight prepaid

9. Trade discounts are

a. Not recorded in the accounts; rather they are a Allowance method
means of computing a price.
b. Used to avoid frequent changes in catalogues. Profit or loss approach
c. Used to quote different prices for different • % of sales
quantities purchased. FOCUS: Doubtful accounts expense
d. All of the above.
SFP approach
10. If a company employs the gross method of recording • % of accounts receivable
accounts receivable from customers, then sales • Aging
discounts taken should be reported as
a. A deduction from sales in the income statement. FOCUS: Allowance for doubtful accounts
b. An item of "other income and expense" in the
income statement.
13. Why is the allowance method preferred over the direct
c. A deduction from accounts receivable in
write-off method of accounting for bad debts?
determining the net realizable value of accounts
a. Allowance method is used for tax purposes.
receivable.
b. Estimates are used.
d. Sales discounts forfeited in the cost of goods sold
c. Determining worthless accounts under direct write-
section of the income statement.
off method is difficult to do.
11. Of the approaches to record cash discounts related to d. Improved matching of bad debt expense with
accounts receivable, which is more theoretically revenue.
correct?
a. Net approach. 14. When the allowance method of recognizing
b. Gross approach. uncollectible accounts is used, the entry to record the
c. Allowance approach. write-off of a specific account
d. All three approaches are theoretically correct. a. Decreases both accounts receivable and the
allowance for uncollectible accounts.
12. The Pacifier Company uses the net price method of b. Decreases accounts receivable and increases the
accounting for cash discounts. In one of its allowance for uncollectible accounts.
transactions on December 15, Pacifier sold c. Increases the allowance for uncollectible accounts
merchandise with a list price of P500,000 to a client and decreases net income.
who was given a trade discount of 20% and 15%. d. Decreases both accounts receivable and net
Credit terms were 2/10, n/30. The goods were income.
shipped FOB destination, freight collect. On December
20, the client returned damaged goods originally billed 15. A company uses the allowance method to recognize
at P60,000. Total freight charges paid by the buyer uncollectible accounts expense. What is the effect at
amounted to P7,500. the time of the collection of an account previously
written off on each of the following accounts?
What is the net realizable value of this receivable on
December 31? Allowance for Uncollectible
a. P272,500 c. P280,000 uncollectible accounts accounts expense
b. P274,400 d. P333,200 a. No effect Decrease
(P23-Kimwell-RPCPA 10/88) b. Increase Decrease
c. Increase No effect
d. No effect No effect
LECTURE NOTES:

Traditional Methods of Accounting for Bad Debts 16. On January 1, 2016, the balance of accounts
receivable of Burgos Company was P5,000,000 and the
allowance for doubtful accounts on same date was
P800,000. The following data were gathered:
Credit sales Writeoffs Recoveries
2013 P10,000,000 P250,000 P20,000
2014 14,000,000 400,000 30,000
2015 16,000,000 650,000 50,000
2016 25,000,000 1,100,000 145,000

Doubtful accounts are provided for as percentage of

credit sales. The accountant calculates the percentage
 annually by using the experience of the three years Debit Credit
prior to the current year. How much should be Subscriptions receivable 800,000
reported as 2016 doubtful accounts expense? Accounts payable for
a. P750,000 c. P330,000 merchandise P4,500,000
b. P812,500 d. P875,000 Credit balances in
customers’ accounts 200,000
17. John Corp. has the following data relating to accounts Cash received in advance
receivable for the year ended December 31, 2016: from customers for
Accounts receivable, January 1, 2016 P480,000 goods not yet shipped 100,000
Allowance for doubtful accounts, Expected bad debts 150,000
January 1, 2016 19,200 After further analysis of the aged accounts receivable,
Sales during the year, all on account, you determined that the allowance for doubtful
terms 2/10, 1/15, n/60 2,400,000 accounts should be P200,000. What is the correct
Cash received from customers during total of current net receivables?
the year 2,560,000 a. P8,950,000 c. P8,600,000
Accounts written off during the year 17,600 b. P8,800,000 d. P8,850,000
An analysis of cash received from customers during the CGAC
year revealed that P1,411,200 was received from 20. Tyson, Inc. reported the following balances (after
customers availing the 10-day discount period, adjustment) at the end of 2016 and 2015.
P792,000 from customers availing the 15-day discount 12/31/16 12/31/15
period, P4,800 represented recovery of accounts Total accounts receivable P105,000 P96,000
written-off, and the balance was received from Net accounts receivable 102,000 94,500
customers paying beyond the discount period.
During 2016, Tyson wrote off customer accounts
totaling P3,200 and collected P800 on accounts written
off in previous years. Tyson's doubtful accounts
The allowance for doubtful accounts is adjusted so that expense for the year ending December 31, 2016 is
it represents certain percentage of the outstanding a. P1,500 c. P3,000
accounts receivable at year end. The required b. P2,400 d. P3,900
percentage at December 31, 2016 is 125% of the rate 21. Cabugao Company began operations on January 1,
used on December 31, 2015. 2015. On December 31, 2015, Cabugao provided for
uncollectible accounts based on 5% of annual credit
The doubtful accounts expense for the year ended
sales. On January 1, 2016, Cabugao changed its
December 31, 2016 is
method of determining its allowance for uncollectible
a. P6,880 c. P8,720
accounts to the percentage of accounts receivable.
b. P7,120 d. P8,960
The rate of uncollectible accounts was determined to
be 15% of the ending accounts receivable balance. In
addition, Cabugao wrote off all accounts receivable
18. On the December 31, 2016 statement of financial
that were over 1 year old. The following additional
position of Mann Company, the receivables consisted
information relates to the years ended December 31,
of the following:
2015 and 2016.
Trade accounts receivable P 93,000 2016 2015
Allowance for uncollectible accounts ( 2,000) Credit sales P8,000,000 P6,000,000
Claim against shipper for goods lost in Collections (including
transit last November 2016 3,000 collections on
Selling price of unsold goods sent by recovery) 6,950,000 4,500,000
Mann on consignment at 30% of Accounts written off 70,000 None
cost (not included in Mann's ending Recovery in accounts
inventory) 26,000 previously written off 20,000 None
Security deposit on the lease of a
warehouse 30,000 How much is the provision for uncollectible accounts
Total P150,000 for the year ended December 31, 2016?
a. P125,000 c. P400,000
How much should be reported as trade and other b. P122,000 d. P 72,000
receivables in Mann's December 31, 2016 statement of
financial position?
a. P94,000 c. P120,000
b. P68,000 d. P150,000
P20 Kimwell/aicpa 11.90

19. When examining the accounts of Medved Company,

you ascertain that balances relating to both receivables
and payables are included in a single controlling
account called receivables control that has a debit
balance of P4,850,000. An analysis of the composition
of this account revealed the following:
Debit Credit
Account receivable –
customers P7,800,000
Accounts receivable –
officers 500,000
Debit balances –
creditors 300,000
Postdated checks from
customers 400,000