Loans

AND
Receivable
s
 2

DEFINITION
Receivables
- Is a financial asset that
represent a contractual right to
receive cash or another financial
asset from another entity.
 3

Classification Of Receivables
(As to source)
Trade Receivables Non-Trade
Receivables
-refer to claims arising
from sale of - these are
merchandises or receivables that arise
services in the from sources other
ordinary course of the than from sales of
business operations. goods or services in
the normal course of
business.
4
 5

Trade Receivables
✖ Accounts Receivable/customer’s
account/ trade debtors
✖ Notes Receivable
 6

Non-trade Receivables
✖ Loans to officers, shareholders,
directors and employees –
current/noncurrent
✖ Advances to affiliates- Long-term
Investment
✖ Advances to supplier for acquisition
of merchandise – Current Asset
✖ Accrued income receivables such as
dividends, accrued rent income,
accrued royalties income and
accrued interest on bonds
investments – Current Asset
 7

Non-trade Receivables
✖ Deposits to guarantee performance
or payment or to cover possible
damages or losses – Current Asset
✖ Deposit with creditors, claims for
losses and damages – Current Asset
✖ Claim receivables from common
carriers for damaged or lost goods;
claims against creditors for returned,
damaged, or lost goods – Current
Asset
 8

Non-trade Receivables
✖ Claim for tax refunds or rebates-
Current Asset
✖ Special deposit on contract bids-
Noncurrent Asset
✖ Debit Balance of creditors account
that may arise from overpayments or
returns and allowance- Current Asset
if material
 9

Classification as to
Statement of Financial Position
Current
Trade Receivables Non-trade
Receivables
-generally classified
as current because of -classified as current
the concept of only if they are
normal operating reasonably expected
cycle to be realized in cash
notwithstanding the within 12 months
period from the after the reporting
reporting date. date.
 10

Non-current

✖ Non trade receivables that are not

reasonably expected to be realized in
cash within 12 months after the
reporting date.
 11

✖ SAMPLE PROBLEM ON PAGE 306

10-1 TRADE AND OTHER
RECEIVABLES
 12

SOLUTION:

1. Accounts receivable 240,000

credit balance 40,000
Uncollectible (3,000)
Master Card or Visa credit card
150,000
Other trade AR- unassigned
70,000
Trade AR-assigned 100,000
Total Trade Receivables
597,000
 13

2. Overpayment to supplier
10,000
Debit balances in supplier’s acct.
30,000
Dividend receivables 15,000
Advances from shareholders
80,000
Trade Receivables(No.1) 597,000
Total trade & other receivables
732,000
 14

Dreamer Company reported the “Receivables” account with a

debit balance of 2 000 000 at year-end.

The allowance for doubtful accounts had a credit balance of

50 000 on the same date.
Subsidiary details revealed the following:

Trade accounts receivable 775,000

Trade notes receivable 100,000
Installment receivable, (normally due 1 yr to 2 yrs) 300,000
Customers’ accts reporting credit bal.
arising from sales return (30,000)
Advance payments for purchase of merchandise 150,000
Customer’s accounts reporting credit bal. arising from
advance payments (20,000)
Cash advance to subsidiary 400,000
Claim from insurance entity 15,000
Subscription receivable due in 60 days 300,000
Accrued Interest Receivable 10,000
 15

Compute for the amount to be

presented as “trade and other
receivables” under current
assets.
 16

Answer:
Accounts Receivable 775,000
Allowance for doubtful accounts
(50,000)
Notes Receivable 100,000
Installment Receivable 300,000
Advances to Suppliers 150,000
Claim Receivable 15,000
Subscription receivable 300,000
Accrued Int. Receivable 10,000
Total trade & other receivables
1,600,000
 17

INITIAL
RECOGNITION
Receivables are recognized
simultaneously with the recognition
of revenue under PFRS 15. An
entity shall recognize revenue to
depict the transfer of promised
goods or services to customers in
amount that reflects the
consideration to which the entity
expects to entitled in exchange for
those goods or services.
 18

Other Revenue
Recognition
Issues
‘Bill-and-hold sales’
It is a contract under which an entity bills a
customer for a product but the entity retains
physical possession of the product until it is
transferred to the customer at a point in time
in the future.
 19

Goods shipped subject to

conditions
1. Installation and 2. On approval
Inspection when the buyer
Conditions has negotiated a
-revenue is normally limited right of
recognized when the return.
buyer accepts -revenue is
delivery and recognized when the
installation and shipment has been
inspection are formally accepted
complete. by the buyer or the
goods have been
delivered and the
time period for
rejection has
 20

Layaway Sales
✖ Revenue from such sales is
recognized when the goods are
delivered. However, when
experience indicates that most sales
are consummated, revenue may be
recognized when a significant
deposit is received.
 21

Sales to distributors or other

intermediate parties
✖ Revenue from such sales is generally
recognized when the control has
been transferred. However, when the
buyer is acting in substance as an
agent, the sale is treated as
consignment sale.
 22

Orders when payment(or partial

payment) is received in advance
✖ Revenue is recognized when the
control of goods are transferred to
the buyer. Normally, control is
transferred when delivery takes
place.
 23

Installment Sales
✖ Revenue attributable to the sales
price, exclusive of interest, is
recognized at the date of sale.
 24

Credit Card Sales

✖ Plastic card which enables the holder
to obtain up to a predetermined limit
from the issuer of the card for the
purchased of goods and services.
✖ Service usually charged ranging from
1% to 5%
 25

Initial
Measurement
Under PFRS 15, revenue should be measured at
the amount of transaction price while under
PFRS 9, are initially measured at fair value
plus transaction cost.
 26

Subsequent
Measurement
Receivables are subsequently measured at amortized
cost
(net realizable value) using the effective interest rate
method.
 27

Loans
Receivables
For banks and other financial institutions, loans
receivable arise from loans to heterogeneous
customers.
 28

INITIAL MEASUREMENT
✖ An entity shall measure a loan
receivable at fair value plus
transaction cost that are directly
attributable to the acquisition of
financial asset.
✖ Transaction cost includes direct
origination fees.
 29

Unearned
interest income
Received from
borrower Amortized over
the term of the
ORIGINATION loan
FEES
Not chargeable
Direct
against the
origination cost
borrower
 30

SUBSEQUENT MEASUREMENT
✖ Loan receivable is subsequently
measured at amortized cost using
effective interest method.
 31

Amortized cost
✖ Minus principal repayment
✖ Plus or minus cumulative
amortization of any difference
between initial carrying amount and
the principal maturity amount
✖ Minus reduction for impairment or
uncollectibility
 32

Sample problem on page 323

(10-26 Loan Receivables)
 33

SOLUTION:

1. Principal Amount 4,000,000

Add: Direct origination cost
150,020
Less: Origination fees (342,100)
Initial PV of loan receivable
3,807,920

2. PV of principal (4M x .7310)

2,924,000
Add: PV of int. payments
(4M X 10% X 2.4437) 977480
 34

2. PV of principal
(4M X .7118) 2,847,200
Add: PV of interest payments
(4M X 10% X 2.4018) 960,720
Total Present value 3,807,920
 35

DATE Interest Interest Discount Present

Collection Income Amortization Value
 
01/01/18       3,807,920
12/31/18 400,000 456,950 56,950 3,864,870
12/31/19 400,000 463,764 63,764 3,928,654
12/31/20 400,000 471,439 71,439 4,000,000
 36

3. Interest Income for 2018 =

456,950
4. Carrying Amount of the loan
as of December 31, 2018 =
3,864,870
5. Nil, the entire receivables is
collectible beyond 1 year.
 37

Journal Entries:
Jan 1. Loans receivables 4,000,000
Cash 4,000,000
Unearned Interest Income 150,020
Cash 150,020
To record direct origination cost
Cash 342,100 Unearned
Interest income 342,100
To record the origination fees received
Dec.31 Cash 400,000
Interest Income 400,000
Unearned Int. Income 56,950
Int. Income 56,950
 38

Loans and
Receivable
Impairment
 39

1. Lifetime expected credit loss- if

the credit risk on that financial
instrument has increased
significantly since initial recognition.
2. 12-month expected credit loss –
has not increased significantly since
initial recognition.
 40

Impairment gain or loss

✖ In accordance with paragraph 5.5.8
of PFRS 9, an entity shall recognize
in profit or loss, as an impairment
gain or loss, the amount expected
credit losses (or reversal) that is
required to adjust the loss allowance
at the reporting date.
 41

Problem 1: Impairment of loans

receivable
On January 1, 2009, Batac Company loaned Badoc
Company amounting to 2,000,000 and received a
two-year, 6% 2,000,000 note. The note calls for
annual interest to be paid each December 31.
Batac collected the 2009 int. on schedule.
However, on December 31,2010 based on the
Badoc’s recent financial difficulties, Batac expects
that the 2010 int. which was recorded in the
books, will not be collected and that only
1,200,000 of the principal will be recovered. The
1,200,000 principal amount is expected to be
collected in two equal installments on 12/31/2012
and 12/31/2014. The prevailing interest rate for
 42

Questions:
✖ Based on the above and the result of
your audit, answer the following:
1. The present value of expected
future cash flows as of 12/31/2010
2. The loan impairment loss in 2010
3. Interest Income for the year 2011
4. Carrying Amount of the loan as of
Dec. 31,2012
 43

SOLUTION:

1. Cash flow,12/31/12
(600,000 X 0.8900) 534,000
Cash flow, 12/31/14
(600,000 X 0.7921) 475,260
Total 1,009,260
 44

2. Principal 2,000,000
Accrued Interest (2,000,000 X 6%) 120,000
Carrying Amt. of the loan,12/31/10 2,120,000
PV of expected cash flow (no.1 ans) (1,009,260)
Loan Impairment loss in 2010 1,110,740

An entity shall assess at the end of each

reporting period whether there is any
objective evidence that a financial asset or
group of financial asset is impaired. (PAS 39
par. 58)
 4

3. Interest Income – 2011

(1,009,260 x 6%) = 60,556
4.
DATE Effective Principal Carrying
Interest Collection Amount
12/31/10     1,009,260
12/31/11 60,556 - 1,069,816
12/31/12 64,189 600,000 534,005
12/31/13 32,040 - 566,045
12/31/14 33,955 600,000 -
Or Carrying Amount, 12/31/12
(600,000 x 0.8900) = 534,000
 46

Impairment and reversal of

impairment loans receivable
 47

QUESTIONS:
1. Loan impairment loss on 2010
2. Interest Income for 2011 assuming
the 200,000 was collected on
12/31/2011as scheduled
3. Allowance for impairment as of
12/31/2011
4. Int. Income in 2012 assuming
600,000 was collected 12/31/2012
as scheduled
5. Carrying Amount of loan receivable
as of 12/31/2012
 48

SOLUTION
Requirement 1:
 49

Requirement 2:

Interest Income for 2011

(2,117,620 x 11%) 232,938

Cash 200,000
Loan Receivable 200,000

Allowance for Loan receivable 232,938

Int. Income 232,938
 50

Requirement 3
 51

Requirement 4
✖ Interest Income for 2012

(2,245,660 X 11%) 247,023

 52

Requirement 5

Principal, 12/31/12
(2,800,000-600,000) 2,200,000
Less allowance for
loan impairment, 12/31/12
(554,340-247,023) 307,317
Carrying Amount ,12/31/12
1,892,683
 53

Receivabl
e
Financing
 54

FACTORING
Involves the sale of receivables to a finance
company, which is called the factor. The
factor or buyer assumes the risk of
collectivity and generally handles billing
and collection function.
 55

FACTORING may either be:

CASUAL REGULAR
FACTORING FACTORING
-Treated as an -the cost of factoring
OUTRIGHT SALE of is debited to
receivable. appropriate expense
account.
-A gain or loss is
recognized for the
difference between
the proceeds
received and the net
carrying amount of
the receivables
factored.
 56

✖ Factors holdback
-portion retained for purchase price
to cover probable sales return,
discount and allowance.
-Receivable from factor is presented
as CURRENT ASSET
 57

✖ SAMPLE PROBLEM ON page 317-318

10-20
 58

SOLUTION

1. OPTION ONE
Cash 360,000
Receivable from factor
(25,000-(5%x 400,000)) 5,000
Loss on sale of rcbls. 35,000
Notes Payable 400,000
 59

2.OPTION TWO
Cash 360,000
Receivable from factor
(25,000-(4%X400,000)) 9,000
Loss on sale of rcbls. 34,000
Notes payable 400,000
Est. recourse liability 3,000
 60

DISCOUNTING
OF NOTES
Sale of notes to a third party,
usually a bank.
 61

DISCOUNTING may either be:

WITHOUT WITH RECOURSE
RECOURSE -endorser shall pay
-endorser avoids the endorsee if the
future liability even if maker dishonors the
the maker refuses to note. This is a
pay the endorsee on contingent or
the date of maturity. secondary liability of
the endorsee.
 62

SAMPLE PROBLEM ON
PAGE318
(10-21)
 63

SOLUTION:

Case No. 1
MV = Principal + Interest
= 600,000 + (600,000 x 9% x
90/360)
= 613,500
Net Proceeds =
613,500 – (613,500 x 12% x 65/360)
= 600,207.50
 64

Net Proceeds 600,207.50

Less: CA of NR
Principal 600,000
Add: Accrued Int.
(600,000 x 9% x 25/360) 3,750 603,750
Gain(Loss) on Discounting (3,542.50)
 65

CASE NO.2

3. Loss of (3,542.50)

4. Maturity Value 613,500

Add: Protest Fee 5,000
Cash received 618,500
 66

CASE No. 3

5. Interest Expense of 3,542.50

6. Maturity Value 613,500

Add: Protest Fee 5,000
Cash received 618,500
 67

Discounting own
notes
It is accounted for as a regular loan.
Discounting means that the interest
is deducted in advance.
 68

✖ SAMPLE PROBLEM ON PAGE 319

10-22
 69

SOLUTION:

1. Notes payable 250,000

Less: Discount on Notes Pybl
(250,000 x 12%) (30,000)
Carrying amount 220,000

Effective int. rate = discount / net

proceeds
= 30,000/220,000
= 13.60%
 70

Question No.2:

Cash 220,000
Discount on notes payable 30,000
Notes payable 250,000
 71

Thank You!