Accounts Receivables

Classification
a. Trade
- arising from current operations (sales/revenue)
- current even if more than a year

b. Non-trade
- residual definition (all except sales)
- Examples:
1. Loans & advances to suppliers (current if silent); affiliates (long-term investment if silent)
2. Accrued interest (current if silent)
3. Accrued dividends (current if silent)
4. Subscriptions Rec. (Not a receivable if non-current; contra-SHE)
5. Claims for losses, tax refunds, damages (current if silent)
6. Debit Balances in AP (Current)

Initial Recognition
- Transaction price (list price) net of trade discount
- less cash discounts

Cash Discount Recognition Models

a. Gross Pricing Method

- less discount when taken only. Simple but not always reflect true values
- What if the discount is taken next period? Allowance for Sales Discount (contra-receivables)

Sales Discount xx
Allowance for Sales Discount xx

b. Net Price Method

- less discount on initial recognition
- Sales Discount forfeited (finance income thus, credit)

c. Allowance method
- Gross AR, Sales (net of sales discount)
- Allowance for Sales Discount (credit; reduc to AR)
Entry:
a. Initial
Accounts Receivable 80
Allowance for Sales Discount 20
Sales 60

b. if taken
Cash 60
Allowance for Sales Disc 20
Accounts Receivable 80

c. if not taken
Cash 80
Allowance for Sales Disc 20
Sales Discount Forfeited 20
AR 80
 Notes Receivables
INTEREST BEARING (REALISTIC)
a. Realistic (Stated rate = Prevailing/market rate)
- no other distinct features. Just get the interest
- Outstanding balance x Interest rate x No. of days outstanding / 360
- Initial recognition is in order: Cash received, FV of property, or FV of note.

NON INTEREST BEARING

- PV of single payment or Installment
- Face Value - PV = Discount (Credit) /Premium
- Amortized cost (PV) must equal to Face value at end of term

Non-Interest Bearing (Single Payment)

Date Interest AC
1/1/2019 263000
12/31/2019 39450 302450
12/31/2020 45368 347818
12/31/2021 52173 399990

Non-Interest Bearing (Installment)

Date Periodic Payment Interest Applied to AC AC
1/1/2019 228322
12/31/2019 100,000 34248.3 65,752 162,570
12/31/2020 100,000 24385.545 75,614 86,956
12/31/2021 100,000 13043.37675 86,957 -1

INTEREST BEARING (UNREALISTIC RATE)

1. Single Payment
- Get the PV (single payment) of Principal
- Get the PV (annuity) of nominal interest

Interest Bearing (Single Payment)

Date Nominal Interest Effective Interest Discount/Amort AC
1/1/2019 510473
12/31/2019 24,000 51047.3 27,047 537,520
12/31/2020 24,000 53752.03 29,752 567,272
12/31/2021 24,000 56727.233 32,727 600,000

- the interest revenue recorded per year is the Effective Interest

- the cash recorded is the nominal interest
- discount/premium to Note is reduced by the difference between Interest Revenue vs. Cash received.

2. Installment Payment

- Get the PV (single payment) per installment period which is;

- Periodic payment + Interest of outstanding balance (NOMINAL)

Present Value (Installment)

Due Date Periodic Payment Nominal Interest PV Factor PV
12/31/2019 200000 24000 0.9091 203636
12/31/2020 200000 16000 0.8264 178512
12/31/2021 200000 8000 0.7513 156273
TOTAL 538422

Interest Bearing (Installment Payment)

Date Periodic Payment Nominal Interest Effective Interest Applied to AC
1/1/2019
12/31/2019 200000 24,000 53842 170,158
12/31/2020 200000 16,000 36826 179,174
12/31/2021 200000 8,000 18909 189,091
vs. Cash received.

AC
538422
368,264
189,091
0
 SUBSEQUENT RECOGNITION
Transactions affecting Receivables after initial recognition:
a. Impairment and recovery of impairment
b. Restructuring of past due note.
c. Dishonor notes (making them due at once, both principal & Interest)

- AR and Notes are measured subsequently @AC

- AC = Principal + Accrued Interest + Premium - Discount - Impairment/Uncollectability
- In ledger balance:

Receivable, unadjusted
+ Interest Receivable
+ Premium on Notes
- Discount on Notes Receivable
- Allowance for Bad Debts
Receivable @AC

- while AR is measured @AC, they are not discounted to PV as any discount is immaterial

Methods of Recognizing Impairment Loss (Bad Debts)

1. Direct Write-off > no recognition of Allowance for IL (Bad Debts)
2. Allowance method > recognizes allowance for IL

Entries for Allowance method:

Recognition of impairment
Bad Debts Expense
Allowance for Bad Debts

Write-off
Allowance for Bad Debts
Accounts Receivable

Recovery
Accounts Receivable
Allowance for Bad Debts (Recovery for direct method)

Cash
Accounts Receivable
 MEASURING IMPAIRMENT LOSS (BAD DEBTS)
Simplified Approach
- used for AR/trade receivables and leases (IFRS 16)
- allowance is based on age of receivable
- in case allowance is excess (debit balance), such recognition of adjustments
is treated as a change in acco estimates, not a policy change or acco error.

Prior year allowance 2000

- Write off receivables -500
+ Recovered receivables 200
+ Current year allowance 1500
Required Allowance 3200
- Current year allowance -1500
Additional recognized impairment 1700

General Approach
- used for receivables not arising from current operations (with significant financing component)

3 Step Approach
1 Recognize allowance for receivables not due and no credit risk within 12 months.
2 Recognize allowance for receivables past due at most 30 days.
3 Measure credit-impaired receivables to its discounted value
USING THE HISTORICAL OR ORIGINAL EFFECTIVE INTEREST RATE
The company must therefore recognize additional allowance for BD for the difference
between the CV and discounted value of the note.

PV of principal 500
PV of interest (effective) 250
Discounted / Restructured Note 750
Less: CV of Note -600
Recognized impairment Loss 150
ng component)
 FINANCING
Classified whether the risks arising from receivables are transferred or not:
1. Secured Borrowing - company retains risks 2. Unsecured - treated as sale of receivables
a. Pledging a. Factoring
b. Assignment of Receivables b. Discounting of Notes without recourse
c. Discounting of Notes recourse

ASSIGNMENT OF RECEIVABLES DISCOUNTING

- Using Receivables as collateral on a loan. -
- For general assignment (Pledging), All receivables are pledged and no entry relating to AR -
- For Specific assignment, the entry to assign AR does not change the total amount of AR -
- Both instances require a disclosure in the notes. -

- For Specific Assignment, AR assigned is basically just another AR. Proceeds = Matur
- Reduced by remittance and sales returns. They're simply reserves for notes. where:
1. Maturity Value
Factoring 2. Discount rate =
3. Discount period
- Factoring fee = charge by finance company for the sale of receivables
- Factor's holdback = amount retain as allowance for sales return, discounts, etc. WITH RECOURS

Related Entries (ex. 10% Factor fee; 5% factor's holdback) Initial Recognition
Cash
Initial Recognition
Cash 8,550
Loss From factoring (from fee) 1,000 Adjustments
Receivable from Factor (from holdback) 450 Interest Receivab
Accounts Receivable 10,000

Sales Return, Discount, Allowances Interest Expense

Appropriate Entry above 200
Receivable from Factor 200
Upon Maturity
Return of excess receivable Liability on Discou
Cash 250 Interest Expense
Receivable from factor 250 Interest Payable
DISCOUNTING OF NOTES
Offering the notes to the bank. The bank will raise the note to its maturity value
Maturity value = as if the note is due.
The bank then applies a discount to the note as charge/fee.
Proceeds of discounting is computed as ff:

Proceeds = Maturity Value x discount rate x discount period

where:
1. Maturity Value = Principal x Interest (of note)
2. Discount rate = provided by bank
3. Discount period = outstanding date before maturity of note.

WITH RECOURSE WITHOUT RECOURSE

Initial Recognition Recognize Interest (Initial Recog)

Cash xx Interest Receivable xx
Liability on Discounted Notes xx Interest Revenue xx

Adjustments Initial Recognition

Interest Receivable (on N/R) xx Cash xx
Interest Revenue xx Loss on Sale of Note xx
Notes Receivable xx
Interest Expense (on N/P) xx Gain on sale of note xx
Interest Payable xx

Upon Maturity
Liability on Discounted Notes xx
Interest Expense xx
Interest Payable xx
Notes Revenue xx
Interest Receivable xx
Interest Revenue xx
 Module

1. Wuhan Company
Receivables Allowance for BD Bad Debts Expense
Beg. Balance 95842 9740 17300
AR Sales 385875
AR Collected -329500
Write off -4955 -4955
Sales Return -26275
Recovery 0 6615
Allowance for Impairment 17300
Total 120987 28700 17300

2. Positive Company

a. Gain on sale of land

Sales 600,000
Cost 400,000
Gain on sale of land 200,000

b. Interest Revenue @2021 48000

c. Value of note
Present Value (Installment)
Due Date Periodic Payment Nominal Interest PV Factor
12/31/2021 200000 48000 0.8929
12/31/2022 200000 32000 0.7972
12/31/2023 200000 16000 0.7118
TOTAL

Interest Bearing (Installment Payment)

Date Periodic Payment Nominal Interest Effective Interest
1/1/2021
12/31/2021 200000 48,000 67215
12/31/2022 200000 32000 45520
12/31/2023 200000 16000 23143
 PV
221429
184949
153745
560122

Applied to AC AC
560122
180,785 379,337
186,480 192,857
192,857 0
1. CPA Company 5. Non-interest bearing (installment)
AR - Customer 3,040,000 Periodic payment 1,000,000
AR - Suppliers 200,000 PVOA 8% - 10 yrs 6.7101
Post-dated checks recorde 160,000 PV of Note 6,710,100
Overpayment (liability) 80,000
AP debit balance (receivab 120,000 PV - Jan 2023 6,710,100
Required impairment bala - 80,000 Effective rate 8%
Trade & Other receivables 3,520,000 Interest Income - 2023 536,808

2. NRV of Receivables Previous CV 6,710,100

AR - Sales 3,283,200 Interest Income - 2023 536,808
Freight out - 100,000 Periodic Payment - 1,000,000
Sales returns (net of cash d- 480,000 CV - Dec 2023 ###
Receivables 2,703,200
6. FruitSalad Company
3. AR Balance FV of note 600,000
AR, beg. 3,800,000 PVSP 10% - 3 yrs 0.7513
Sales 18,000,000 PV of Note 450,780
Sales Returns - 280,000
Collections - 15,300,000 Previous CV 450,780
Settlement Note - 2,000,000 Interest Income - 2022 45,078
Write off - 160,000 CV - Dec 2022 495,858
AR balance 4,060,000
7. Fruit Salad Corp.
4. AR Balance FV of note 1,200,000
AR, beg. 950,000 PVSP 10% - 3 yrs 0.7513
Credit Sales 3,800,000 PV of Principal 901,560
Cash received from sales - 3,024,000
Discounts - 126,000 Nominal Interest 36,000
Write off - 50,000 PVOA 10% - 3yrs 2.4869
Sales Return - 250,000 PV of Interest 89,528
AR Balance 1,300,000 PV of Note 991,088
Required impairment bala - 170,000
AR Balance 2,430,000 Previous CV 991,088
Nominal Interest - 36,000
Effective Interest 99,109
CV - 2023 1,054,197

Previous CV 1,054,197
Nominal Interest - 36,000
Effective Interest 105,420
CV - 2024 1,123,617

Previous CV 1,123,617
Nominal Interest - 36,000
Effective Interest 112,362
CV - 2025 1200000*
Payment - 1,200,000
CV - 2025 0
installment) 8. Sale of Land
Principal + Interest PV Factor 10% PV
436,000 0.9091 396367.6
424,000 0.8264 350393.6
412,000 0.7513 309535.6
Total 1056296.8

PV of Note 1,056,297
Gain on Sale of Land - 800,000
256,297

9. Fruit Salad Bank

Principal of Note 5,000,000
Accrued Interest 450,000
FV of Note 5,450,000

Principal 5,450,000
PVSP 9% - 3yrs 0.7720
PV of Note 4,207,400
Impairment Loss - 1,242,600

10. Fruit Salad - Macaroni

FV of Note 100,000
Not defaulting % 70%
Recoverable amount % 60%
NRV of Note 42,000

Principal 42,000
PVSP 8% - 5yrs 0.6806
PV of Principal 28,585

Interest 3,360
PVOA 8% - 5yrs 3.9927
PV of Interest 13,415
PV of Note 42,001

11. Fruit Salad Inc.

AR Assigned 1,500,000
AR Assigned 1,500,000

Cash 970,000
Finance charges 30,000
NP to bank 1,000,000
12. Fruit Salad Corp.
AR Factored 3,600,000
Factoring Fee (9%) - 324,000
Factor's Holdback (6%) - 196,560
Proceeds from Factoring 3,079,440

13. Discounting w/ Recourse

Principal 5,000,000
Interest 225,000
Maturity Value 5,225,000
Less: Discount - 209,000
Proceeds from Discountin 5,016,000

Gain/Loss on Discounti 59,000

14. CPA Co.
Loan amount 420,000
Less: Finance charges - 8,400
Proceeds from assigned 411,600

Theories
15. A
16. C
17. C
18. D
19. A
20. D
25. Lancer Company
The AR is already @year-end, so walang effect si net credit sales
26. Lancer Company
The normal balance of Allowance Is credit, since the given is debit, negative amount

33. Pajero Corp

The problem is about discounting notes, not necessarily NR PV

36 - 37. State Finance

Bakit hindi kinuha PV (?) kasi may agreement na for principal + interest (mentioned does not intend to measure @FV)
1,940,000 is already your face value ofh note (cash received has higher priority than discounting cash flows0
Interest Revenue recognized is based on EI (1940000 x 13.4% x 1/12)
Interest Receivable (in a sense, cash received) is based on NI (2,000,000 x 12% x 1/12)

38 - 39. Jack Company

902,500 x PV of ordinary annuity 11% is still 2.8m

902,500 being the annual payment as stated in the problem, and treat it as a normal PV table
The current for 2021 is therefore the annual payment minus accrued interest (2022) for 6 months only.

43 - 45.
Always use the historical rate (first rate used, unadjusted) in getting the PV.
end to measure @FV)
cash flows0
2-4. Format Company
Principal Interest
3572100 285768
3857868 308629

2-5. Formatted Company

Principal Interest
3865650
2674902 309252
1388894 213992
0 111106
Non-Interest Bearing (Installment)
Date Periodic Payment Interest Applied to AC AC
1/1/2020 3865650
12/31/2020 1,500,000 309252 1,190,748 2,674,902
12/31/2021 1,500,000 213992.16 1,286,008 1,388,894
12/31/2022 1,500,000 111111.5328 1,388,888 6

2-6. CRV Company

Masyadong madali hahaha

2-7. Pinky Pop Company

Present Value (Installment)
Due Date Periodic Payment Nominal Interest PV Factor PV
12/31/2019 2500000 375000 0.9091 2613636
12/31/2020 2500000 250000 0.8264 2272727
12/31/2021 2500000 125000 0.7513 1972201
TOTAL 6858565

Interest Bearing (Installment Payment)

Date Periodic Payment Nominal Interest Effective Interest Applied to AC
1/1/2019
12/31/2019 2500000 375,000 685856 2,189,144
12/31/2020 2500000 250,000 466942 2,283,058
12/31/2021 2500000 125,000 238636 2,386,364

2-8. Pinky Pop Company

Present Value (Installment)

Due Date Periodic Payment Nominal Interest PV Factor PV
12/31/2019 2500000 1050000 0.9091 3227273
12/31/2020 2500000 700000 0.8264 2644628
12/31/2021 2500000 350000 0.7513 2141247
TOTAL 8013148

Interest Bearing (Installment Payment)

 Date Periodic Payment Nominal Interest Effective Interest Applied to AC
1/1/2019
12/31/2019 2500000 1,050,000 801315 2,748,685
12/31/2020 2500000 700,000 526446 2,673,554
12/31/2021 2500000 350,000 259091 2,590,909

2-9. Toyota Products

JE to eh

2-10. Word Company

Allowance for
Impairment
Beg. Bal 5,000
Req. Bal 50,000
Less: End bal -2,000
BD Exp 52,000

2-11. Edit Company

Allowance
Beg Bal. 6,000
Recovery 3000
Bad Debt Exp 48,000
Total Bal. 57,000
Req. bal 12,000
Write-off 45,000

2-12. Rav Inc.

AR Allowance
Beg bal 337,000 12,000
Credit Sales 1,500,000 -11,000
Cash paid to Credit
Sales -1,600,000 3,000
Discounts -23,000 15,000
Recovery 3,000 19,000
Write off -11,000
Sales Return -6,000
200,000
2-13. Revo Company
Allowance AR,ending 654,000
Beg bal 34,000 Less: Allowance 53600
Write off -47000 AR @AC 600,400
Recovery 7000
Write off -6000
End bal -12,000
Req bal 53600
Write off 65,600
2-14. Adventure Company
- Notes that were restructured is a deduction to AR;
- Recovery included in cash collection is added to AR
AR Allowance
Beg bal 1200000 60000
Sales 10000000 20,000
Collected -8700000 -100000
Write off -100000
Restructured -400,000
end bal 2000000 -20,000
Req balance 190,000
Write off 210,000

End bal 2000000

Impairment -190,000
AR @AC 1810000

2-15. Maynilad Bank

Alternative 1 Alternative 2 Alternative 3 Alternative 4
Net AR + Accrued int 11,000,000 11,000,000 10,000,000 11,000,000
Less:
Principal 7,438,016 8264463 9090909
Interest 1,249,587 1214876 1909091
PV of restruc note 8,687,603 9,516,315 9479339 11000000
Impairment Loss 2,312,397 1,483,685 520,661 0

Alt 2 2,000,000 800000 2,800,000 0.9090909090909 2545454.5454545

2,000,000 640000 2,640,000 0.8264462809917 2181818.1818182
2,000,000 480000 2,480,000 0.7513148009016 1863260.7062359
2,000,000 320000 2,320,000 0.6830134553651 1584591.216447
2,000,000 160000 2,160,000 0.6209213230592 1341190.0578078
9516314.7077634
 2.21 Hiku Company

a. cash received after factoring

AR Assigned 1200000
Factoring fee 10%
Factor's holdback 6%
Cash Proceeds 1015200

b. Equity assigned accounts

AR assigned 500,000
Collection -350000 -350000
AR assigned 150,000
Less: Balance of Notes
Notes 400000
Remittance 346000 54000
Equity assigned 96,000

c. Cash proceeds on discounting

Principal 50000
Interest 1500
Maturity Value 51500
Discount 1259
Cash proceeds 50241

2-22. Edsamail Company

Principal 500000
Interest 40000
AC Maturity Value 540000
6858565 Discount 22500
4,669,421 Cash proceeds 517500
2,386,364
0 2-23. EBT

a. Principal 90000
Interest 0
Maturity Value 90000
Discount 493
Cash proceeds 89507

b. Principal 75000
Interest 1664.38356
Maturity Value 76664.3836
Discount 1050
AC Cash proceeds 75614
8013148
5,264,463 c. Principal 60000
2,590,909 Interest 2367.12329
0 Maturity Value 62367.1233
Discount 769
Cash proceeds 61598

2-25. Explorer Company

Cash received 1615000

Factor's heldback 85000

Sales Return -30000
Heldback returned 55000

2-26. Nature Company

AR NR IR
Beginning Balance 600000 100000 2,800
(1) Credit Sales 3000000
(2) Cash Collection -2070000
Discount taken -18000
(3) Notes for settlement -250000 250000
(4) Note Collection -200000 -2,800
(5) Discount with recourse -40,000
(6) No effect
(7) Overdue account 15,900 -15,000
(8) Write off -12,000
(9) Collection of assigned -180,000
(11) Interest adjustment 3200
(10) Allowance assessment

1085900 95000 3200

Trade & Other Receivables 1,154,100

Allowance
12,000

-12,000

30,000
4. BNY Company

Receivables Allowance
6250000 32500
66000
80000
178500
6071500

24. Black Pink Company

If recovery is included in cash collections, add it back to get the AR
If it is not included and given in the problem, simply ignore.

37. Gordon Company

Wild guess should be 77,500
The amount charged to AR should be the maturity value (76500) plus protest fee (1000)
24.

AR (net) 791000
Required allowance 130500
Write-off -15000
Recovery 6000 121500
NRV AR 669500

25.
24,500 less over the four-year period cuz ang adjustments sa prev years
dinadala for the ff year.

28.
No loss if with recourse.

33.
55.

AR (Gross) 6,000,000
Factoring fee 15%
Loss on factoring 900000
Less: Allowance -200,000
Loss on factoring 700000