Loans

AND
Receivables
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DEFINITION
Receivables
- Is a financial asset that represent
a contractual right to receive cash or
another financial asset from another entity.
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Classification Of Receivables
(As to source)
Trade Receivables Non-Trade Receivables

-refer to claims arising - these are receivables

from sale of that arise from sources
merchandises or other than from sales of
services in the ordinary goods or services in the
course of the business normal course of
operations. business.
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Trade Receivables

✖ Accounts Receivable/customer’s account/

trade debtors
✖ Notes Receivable
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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
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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
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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
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Classification as to
Statement of Financial Position
Current
Trade Receivables Non-trade Receivables

-generally classified as -classified as current

current because of the only if they are
concept of normal reasonably expected to
operating cycle be realized in cash
notwithstanding the within 12 months after
period from the reporting the reporting date.
date.
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Non-current

✖ Non trade receivables that are not

reasonably expected to be realized in
cash within 12 months after the reporting
date.
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✖ SAMPLE PROBLEM ON PAGE 306

10-1 TRADE AND OTHER RECEIVABLES
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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
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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
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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
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Compute for the amount to be presented

as “trade and other receivables” under
current assets.
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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
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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.
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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.
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Goods shipped subject to conditions

1. Installation and 2. On approval when

Inspection the buyer has
Conditions negotiated a limited
-revenue is normally right of return.
recognized when the -revenue is recognized
buyer accepts delivery when the shipment has
and installation and been formally
inspection are accepted by the buyer
complete. or the goods have been
delivered and the time
period for rejection
has elapsed.
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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.
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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.
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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.
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Installment Sales

✖ Revenue attributable to the sales price,

exclusive of interest, is recognized at the
date of sale.
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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%
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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.
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Subsequent
Measurement
Receivables are subsequently measured at amortized cost
(net realizable value) using the effective interest rate method.
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Loans Receivables
For banks and other financial institutions, loans
receivable arise from loans to heterogeneous
customers.
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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.
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Unearned
interest income
Received from
borrower Amortized over
the term of the
ORIGINATION loan
FEES
Not chargeable
Direct
against the
origination cost
borrower
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SUBSEQUENT MEASUREMENT

✖ Loan receivable is subsequently

measured at amortized cost using
effective interest method.
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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
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Sample problem on page 323

(10-26 Loan Receivables)
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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
Total present value 3,901,480
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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
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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

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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.
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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
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Loans and
Receivable
Impairment
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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.
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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.
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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 similar type of note as of
12/21/2010 is 8 %.
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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
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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
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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)
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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
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Impairment and reversal of impairment

loans receivable
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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
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SOLUTION
Requirement 1:
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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
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Requirement 3
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Requirement 4

✖ Interest Income for 2012

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

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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
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Receivable
Financing
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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.
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FACTORING may either be:

CASUAL REGULAR
FACTORING FACTORING
-Treated as an -the cost of factoring is
OUTRIGHT SALE of debited to appropriate
receivable. expense account.
-A gain or loss is
recognized for the
difference between the
proceeds received and
the net carrying amount
of the receivables
factored.
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✖ Factors holdback
-portion retained for purchase price to
cover probable sales return, discount and
allowance.
-Receivable from factor is presented as
CURRENT ASSET
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✖ SAMPLE PROBLEM ON page 317-318

10-20
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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
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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
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DISCOUNTING
OF NOTES
Sale of notes to a third party, usually a
bank.
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DISCOUNTING may either be:

WITHOUT RECOURSE WITH RECOURSE

-endorser avoids future -endorser shall pay the
liability even if the maker endorsee if the maker
refuses to pay the dishonors the note. This
endorsee on the date of is a contingent or
maturity. secondary liability of the
endorsee.
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SAMPLE PROBLEM ON
PAGE318
(10-21)
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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
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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)
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CASE NO.2

3. Loss of (3,542.50)

4. Maturity Value 613,500

Add: Protest Fee 5,000
Cash received 618,500
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CASE No. 3

5. Interest Expense of 3,542.50

6. Maturity Value 613,500

Add: Protest Fee 5,000
Cash received 618,500
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Discounting own
notes
It is accounted for as a regular loan.
Discounting means that the interest is
deducted in advance.
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✖ SAMPLE PROBLEM ON PAGE 319

10-22
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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%
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Question No.2:

Cash 220,000
Discount on notes payable 30,000
Notes payable 250,000
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Thank You!

Jhanelle Marquez & Roi Reyster Pornobi