PREPARED BY; LOPEZ, JOEBIN CORPORAL

Summary for measurement of RECEIVABLES;

Receivables
Represents contractual rights to receive cash or another financial assets from another entity
(IAS 32 Par. 11c). Type of Receivable Initial Measurement Subsequent Measurement

As to classification;
Trade accounts receivables Face Value Net Realisable Value
Trade Receivables- contractual rights are obtained from receipts of sale and goods in the
ORDINARY course of business.
Trade notes receivable Face Value Face Value
Nontrade Receivables- contractual rights are obtained other than those from receipts of sale
and goods in the ordinary course of business. Short term interest bearing notes receivable Face Value Face Value

As to presentation; Short term noninterest bearing notes

receivable Face Value Face Value
IAS 1 Par. 66, An entity shall classify an asset as current when;
Long term interest bearing note receivable Face Value Face Value
a.) The entity expects to realize the asset, intends to sell or consume it in its NORMAL
OPERATING CYCLE.
Long term noninterest bearing note
c.) expects to realize the asset within twelve months after the reporting period. receivable Present Value Amortised Cost
THEREFORE;
Long term interest bearing note receivable
Trade and other receivables- presented as current regardless if it is collectible beyond 1 year. (unrealistic) Present Value Amortised Cost
The reason is that it depends upon the entity’s NORMAL OPERATING CYCLE.
Loans receivable Present Value Amortised Cost
Nontrade receivables- presented as current if the asset qualifies in accordance with Par. 66c of
the IAS 1. Otherwise, we present it as a noncurrent asset.

NORMAL OPERATING CYCLE- the operating cycle of an entity is the time between the
acquisition of assets for processing and their realization in cash and cash equivalents (IAS 1 Par.
68).

General Measurement;

At initial recognition, the entity shall measure a financial asset at FAIR VALUE PLUS
TRANSACTION COSTS directly attributable to the acquisition of financial asset.

Trade receivables measurement

Unless there is no SIGNIFICANT FINANCING COMPONENT that is attached to the receivable,

trade receivables are measured initially at face amount.

IFRS 15 Guidance

If a receivable contains significant financing component, the entity shall measure it initially at
present value of future cash flows, however, IFRS 15 provided that the entity may opts to Loans Receivable- A financial asset arising from a loan granted by a BANK OR OTHER
measure it at transaction price, by virtue of practical expediency. FINANCIAL INSTITUTION to borrower or client (Valix, Peralta, INTACC-1 2020).

PREPARED BY; LOPEZ, JOEBIN CORPORAL

PREPARED BY; LOPEZ, JOEBIN CORPORAL

Initial Measurement

All loans receivable are initially measured at FAIR VALUE PLUS TRANSACTION COSTS directly To apply the concept, the following are the specific guidelines;
attributable to the acquisition of the financial asset.
Time value of money
FAIR VALUE- the price that would be received to sell an asset or paid to transfer a liability in an factor Application
orderly transaction between market participants at the measurement date (IFRS 13 Par. 9). Future cash
Present value of 1 flow
TRANSACTION COSTS- An incremental cost is one that would not have been incurred if the is lump sum.
entity had not acquired, issued or disposed of the financial instrument (IFRS 9 Appendix A). Present value of an Future cash
ordinary flows
Herein, the transaction costs are the following;
are in
1.) Direct Origination Costs- Included on initial measurement. annuity of 1 installments
2.) Indirect Origination Costs- Not included, expensed immediately. Present value of an
annuity Cash flows are
Subsequent Measurement due of 1 in installments
and first
Loans receivables met the criterion of measurement provided by IFRS 9 Par. 4.1.2. Therefore,
payment
they are subsequently measured at AMORTIZED COST.
is made
Concept of Discount/Premium immediately.

Face value > Present Value = Discount

Initial and Subsequent Measurement
Face value < Present Value = Premium
The initial and subsequent measurement of Note Receivables depends on the term and nature
of the instrument. It was already summarized above.
Note Receivable- are formal WRITTEN PROMISES to pay certain sum of money at determinable Basis of Measurements
future date. This are supported by negotiable promissory notes.
Materiality- The reason why short term interest bearing, long term with reasonable interest,
Promissory note- it can be a negotiable promissory note that can be either sold or transferred short term non interest bearing note receivable are measured at face amount because both the
legally to others. FASB and IFRS reach the consensus with regards to the differences between fair value and
IMPORTANT CONCEPT; TIME VALUE OF MONEY present value is usually not material.

Formula in Cost-benefit Constraint- In relation to materiality, although relevance can be obtained, the cost
excel of providing relevant information does not justify the benefits.
Future Value of 1 (1+i)^n
Remember;
Future value of an
ordinary annuity ((1+i)^n-1)/-i The usage of time value of money concept is used to both loans and note receivable. The
Future value of Annuity ((1+i)^n-1)/-i reason is that the entity, especially if the business model in managing the financial assets is to
Due x (1+i)
hold and collect contractual cash flows of solely payments of principal and interest on the
Present Value of 1 (1+i)^-n
principal amount outstanding.
Present Value of an
ordinary annuity ((1+i)^-n-1)/-i Trade and other receivables;
Present value of annuity ((1+i)^-n-1)/-i
due x (1+i)

PREPARED BY; LOPEZ, JOEBIN CORPORAL

PREPARED BY; LOPEZ, JOEBIN CORPORAL

Accounts receivable- are open accounts, usually informal agreement and is not supported by PVF
promissory note to serve as an evidence unlike note receivables. Annual interest x
PVF XX
Initial and Subsequent Measurement
Present value XX
Trade accounts/notes receivable are initially measured at their TRANSACTION PRICE or usually
equal to FACE AMOUNT and ORIGINAL INVOICE price. Subsequently, they are measured at
AMORTIZED COST or the infamous term, NET REALIZABLE VALUE. Subsequent Measurement;

The note receivable is amortized using EFFECTIVE interest method similar to the computation
of loans receivable.
ACCOUNTING FOR RECEIVABLES

Initial measurement of Loans Receivable;

Face value XX
Add; Direct origination costs XX
Less; Direct origination fees Initial Measurement of long term noninterest bearing note;
received (XX)
Face value of
Initial carrying amount XX
NR XX
Multiply by
Subsequent measurement; PVF XX
Present value XX
The financial asset is amortized using EFFECTIVE INTEREST METHOD.

Amortization table (Matrix).

To compute for the unearned interest/discount;
Date Collections Interest Received Interest Income Amortization Present Value
Face value of NR XX
Less; Present
Or it can be computed in good form; value (XX)
Unearned
Initial carrying
interest XX
amount XX
Add; Interest
income XX Subsequent Measurement;
Less; Interest
received (XX) The amortized cost of the note receivable is computed using EFFECTIVE INTEREST METHOD.
Collections (XX) Amortization table (Matrix)
Carrying amount,
end XX Interest
Date Income Unearned Interest Present Value

Initial Measurement of Long-term interest bearing note w/ unreasonable interest rate;

Or it can be computed in good form;
Principal amount x XX
Present value XX

PREPARED BY; LOPEZ, JOEBIN CORPORAL

PREPARED BY; LOPEZ, JOEBIN CORPORAL

Add; Interest income XX Less; Collections (XX)

Carrying amount XX Carrying amount XX

OR Or alternatively as;
Face value of NR XX Note receivable
Less; Unamortized (outstanding) XX
discount (XX) Less; Unamortized
Carrying amount XX discount (XX)
Carrying amount XX

Long term noninterest bearing note in installment basis;

Periodic collections XX
Multiply by PVF XX
Initial carrying Long term noninterest bearing installment basis (Advanced Payment)
amount XX
Periodic collections XX
Multiply by annuity
To compute for the unearned interest/discount; due factor XX
Face value of Initial carrying amount XX
NR XX
Less; Initial C/A (XX) Or alternatively as;
Discount on Periodic collections XX
NR XX Multiply by PVF
(subsequent) XX
Present value
Amortization table (Matrix) (Subsequent) XX
Date Collections Interest income Amortization Present value Add; Advance
payment XX
Initial carrying
Or in good form; amount XX
Initial carrying amount XX
Add; Interest income XX To compute for carrying amount at year end;

PREPARED BY; LOPEZ, JOEBIN CORPORAL

PREPARED BY; LOPEZ, JOEBIN CORPORAL

Initial carrying granted

amount XX Pxx Estimated sales discount
Less; Advance Ending balance Pxx
payment XX
Balance XX
Add; Interest Allowance for sales returns
income XX Sales returns
Carrying amount XX granted Pxx Pxx Beginning balance
Pxx Estimated sales returns
*There are different variations of problems in terms of long term note receivable. I believe that Ending balance Pxx
the concept of time value of money is a must when analyzing problems.

Cash Price Equivalent Allowance for doubtful

The price that would be received or paid when an asset is sold or acquired in outright cash.. accounts
The cash price equivalent of a noncash consideration given up will serve as the fair value on Pxx Beginning balance
initial recognition. Writeoffs Pxx Pxx Recoveries
Doubtful accounts
TRADE RECEIVABLES Pxx expense
Trade accounts and notes receivable are measured initially at their TRANSACTION PRICE and Ending balance Pxx
subsequently measured at their recoverable historical cost or commonly known as NRV.

Factors to be considered;

1.) Allowance for freight charge

2.) Allowance for sales discount
3.) Allowance for sales returns
4.) Allowance for doubtful accounts

Analysis for Trade accounts/notes receivables; Net realizable value

Allowance for freight
Accounts receivable Pxx charge
Beginning Collections (Including Accounts Allowance for sales
balance Pxx Pxx recoveries) receivable, end Pxx Pxx discount
Credit Sales Pxx Pxx Writeoffs Allowance for sales
Recoveries Pxx Pxx Sales returns (actual) Pxx returns
Pxx Sales discounts (actual) Allowance for doubtful
Pxx Ending balance Pxx accounts
Pxx Net realizable Value

Allowance for sales

*Allowance for freight charge usually arises when the terms are in FOB shipping point, freight
discount
prepaid.
Sales discount Pxx Pxx Beginning balance

PREPARED BY; LOPEZ, JOEBIN CORPORAL

PREPARED BY; LOPEZ, JOEBIN CORPORAL

Methods of Recording; RECEIVABLE FINANCING- To generate cash out of the entity’s outstanding and future
receivables.
1.) Gross Method- widely accepted, only record discounts when taken.
2.) Net Method- rarely used, immediately records discounts when a transaction occurs. Forms of receivable financing;

Methods of estimating bad debts; As a secured borrowing;

I. Percentage of net credit sales method - Pledge (Hypothecation)

II. Percentage of receivables method - Assignment
III. Aging of receivables
As a sale;
IV. Combination of previously stated methods
- Factoring
- Discounting of notes
Methods of recording bad debts
Concept;
1.) Allowance method- Accepted, in conformity with GAAP and IFRS.
Pledging- No other accounting issues. Treated only as a regular borrowing. The entire
2.) Direct writeoff method- Not accepted, only used for tax purposes.
receivables are collateralized.
Percentage of net credit sales;
Assignment- Accounts receivable are not affected. Specific accounts are only collateralized or
Net credit sales x % of uncollectability = BAD DEBTS EXPENSE treated as a security. Accounts receivable- assigned accounts maybe used for purposes of
presentation.
Percentage of receivables;
 Assignor- The entity
Accounts receivable, end x % of uncollectability = REQUIRED ALLOWANCE
 Assignee- Lender
To get the percentage; - As to mode;
1. Notification basis
Writeoffs less % of
2. Non-notification basis
recoveries = uncollectabilit
Credit sales y Accounts receivable-
Aging of accounts receivable; assigned Pxx
Less; Liability (Pxx)
Provision matrix;
Equity in assigned
Customer Under 30 Over 120 accounts Pxx
Accounts Balance Days 31- 60 days 61-90 days 91-120 days days

The equity on assigned accounts shall be disclosed in the notes to FS.

%
Days Receivable Uncollectible Required
outstanding Balances s Allowance
Factoring- Accounts receivable are sold to a buyer called a factor.

Sample format but not limited as the problem varies (Kairita!✌️).

2nd variation;
Accounts receivable Pxx
Expected Required
Date Default % Gross CA allowance Less; Factor's
holdback (Pxx)

PREPARED BY; LOPEZ, JOEBIN CORPORAL

PREPARED BY; LOPEZ, JOEBIN CORPORAL

Interest expense (Pxx) Credit Risk- The risk that one party to a financial instrument will cause a financial loss to the
Commission other party by failing to discharge an obligation.
expense (Pxx)
Credit loss- difference between all contractual cash flows that are due to an entity in
Cash proceeds Pxx
accordance with the contract and all the cash flows that the entity expects to receive (ie all cash
shortfalls), discounted at the original effective interest rate (or credit-adjusted effective interest
The difference between the first two forms of financing and the remaining is on the rate for purchased or originated credit-impaired financial assets).Loss allowance- the allowance
derecognition of an asset. for expected credit losses (IFRS 9, appendix A).

When is an asset derecognized? Expected credit losses- The weighted average of credit losses with the respective risks of a
default occurring as the weights (IFRS 9, appendix A).
1.) When the contractual rights have expired.
2.) When the financial asset is transferred and the transfer qualifies for derecognition. General Application;

Discounting of Note Receivable- the company (holder) endorses the note to an endorsee STAGE 1;
usually a financial institution and the latter discounts the note.  Recognize 12-month expected credit losses.
Essential elements  Interest income is computed on the gross carrying amount of the asset.

1.) Maturity value = Principal + Nominal Interest (Full term) STAGE 2;

2.) Discount = Maturity value x discount rate x discount period  Recognize lifetime expected credit losses.
3.) Net Proceeds = Maturity value – Discount  Interest income is computed on the gross carrying amount of the asset.
4.) Loss on discounting = Net Proceeds – Carrying amount of NR
5.) Carrying amount of NR = Principal + Nominal Interest (before discount period) STAGE 3;

*Discount period is the period of time from date of discounting to maturity value.  Recognize lifetime expected credit losses.

 Interest is computed on the net carrying amount (I;e gross CA less loss allowance).

As to liability; To compute for gross carrying amount;

Without recourse- outright sale Initial carrying

amount Pxx
With recourse- The company assumes a liability Add; Interest Pxx
1.) Conditional sale- recognize a contingent liability, usually the note receivable- discounted income
is used which is a “contra asset” account, thus deduction to total note receivables. Less; Interest
2.) Secured borrowing- recognize a regular borrowing. received (Pxx)
Collections (Pxx)
Gross carrying
IMPAIRMENT OF RECEIVABLES amount Pxx

IFRS 9 requires that the expected credit loss model be applied to all DEBT INSTRUMENTS that
are not measured at fair value through profit or loss.

PREPARED BY; LOPEZ, JOEBIN CORPORAL

PREPARED BY; LOPEZ, JOEBIN CORPORAL

CONCEPT- The net carrying amount is simply the present value of all expected future cash Stage 2.
flows at the date of impairment discounted at the ORIGINAL EFFECTIVE RATE.
Carrying amount Pxx
Gross carrying amount Pxx Multiply; Probability of
Less; Impairment loss (Pxx) collection %
Net carrying amount Pxx Expected cash flow Pxx
Multiply by; PV of
Loan receivable, remaining periods PVF
outstanding Pxx Present value of CF Pxx
Add; Accrued interest, if
any Pxx Carrying amount Pxx
Gross carrying amount Pxx Less; Present value of CF (Pxx)
Less; PV of new Expected credit loss Pxx
principal Pxx Multiply; Lifetime
PV of new interest Pxx (Pxx) probability %
Impairment loss Pxx Lifetime expected loss Pxx

Loan receivable Pxx

Comprehensive matrix;
Less; Lifetime expected
Stage 1. loss (Pxx)
Carrying amount Pxx
Carrying amount Pxx
Multiply; Probability of
collection % Stage 3.
Expected cash flow Pxx
The same computation with stage 2 for the loss allowance. However in this stage, there is an
Multiply by; PV of
remaining periods PVF objective evidence of impairment, thus the difference between carrying amount and expected
cash flow is directly written off.
Present value of CF Pxx
Additional formula; If there is no given effective rate
Carrying amount Pxx
The process is to first apply the concept of discount/premium;
Less; Present value of CF (Pxx)
Expected credit loss Pxx 1.) The higher the rate, the lower the value
Multiply; 12-month 2.) The lower the rate, the higher the value
probability loss %
Apply trial and error approach.
12- month expected loss Pxx
To find the exact rate; we have to compute using INTERPOLATION METHOD:
Loan receivable Pxx
Less; 12-month expected
loss (Pxx)
Carrying amount Pxx Formula for interpolation method:

PREPARED BY; LOPEZ, JOEBIN CORPORAL

PREPARED BY; LOPEZ, JOEBIN CORPORAL

X% - LR
= %
HR - LR

Lower rate + % =
Effective interest rate

Related standards;

IFRS 9: Financial Instruments

IAS 32: Presentation of Financial Instruments

IAS 1: Presentation of Financial Statements

IFRS 15: Revenue from contracts with customers

IFRS 7: Financial instruments: Disclosures

THE END HAHAHAHAHAHA

PREPARED BY; LOPEZ, JOEBIN CORPORAL