RECEIVABLES

is termed as a non-interest-bearing note.

Nature of receivables
Receivables are financial assets arising
from contractual rights to receive cash or
another financial asset from another Initial valuation
Accounts receivable is initially recognized
company. when the entity becomes a party to the
contractual provision of the instrument
and are initially valued at the transaction
price, which is the amount an entity
Types of receivables expects to be entitled in exchange for the
transfer of goods and services.
At the date of initial recognition notes
Trade receivables arise from the sale of receivable are valued at:
merchandise or service in the ordinary a. Face value if stated interest
rate is equal to the prevailing market
course of business. This may be interest rate (effective interest rate or
evidenced by a promise to pay called yield rate) at initial recognition. Here the
notes’ present value equals its face value.
Notes Receivable, or not evidenced by a
promise to pay, Accounts Receivable b. Present value that is lower
than the face value, if stated interest rate
is lower than prevailing market pinterest
Non-trade receivable are claims rate. A typical example of a note that is
arising from sources other than from sale initially recorded at present value, which
is lower than the face value is a non-
of goods and services in the normal interest-bearing note. The difference
course of business. between the present value and the face
value is recognized as a discount on note
receivable which is amortized as interest
income under the effective interest
Nature of note receivable method.
A note receivable is evidenced by a c. Present value that is higher
written promise to pay. The note than the face value, if stated interest rate
receivable may either be interest-bearing is higher than the prevailing market
or non-interest-bearing. A note receivable interest rate. The difference between the
is said to be interest bearing if it has a present value and the face value is
nominal interest rate. A note receivable recognized as a premium on notes
that does not have a nominal interest rate receivable which is amortized under the
effective interest method.

Valuation at reporting date

Receivables are valued at amortized cost, which is the face value of the note plus the
unamortized balance of the Premium on Note Receivable or minus the unamortized balance
of the Discount on Notes Receivable less any allowance for estimated credit losses.

Presentation of receivables in the financial statements

Trade receivables are classified as current assets.

Non-trade receivables expected to be collected within 12 months from reporting date are
classified as current; while those expected to be collected beyond are classified as non-
current.

Impairment of Loans and Receivables:

The impairment loss model under IFRS 9 provides for allowance for estimated credit losses
(ECLs) by estimating the probability of default by taking into account macro-economic
factors. ECL is the probability-weighted estimate of credit losses (i.e., the PV of all cash
shortfalls) over the life of a financial instrument.

Lifetime ECL is the ECL that results from all possible default events over the expected life of a
financial instrument.

12-month ECL is a portion of the lifetime ECL and represents the lifetime ECL resulting from a
default occurring

in the 12 months after the reporting date weighted by the probability of that default
occurring.

Stages in the Measurement and Recognition of Impairment

Stage 1 – Recognize the impairment loss in P/L thru an allowance account based on a 12-
month ECL after reporting period for receivables that are not credit impaired and with no
significant increase in credit risk from initial recognition

Stage 2 – Recognize in P/L, lifetime ECL for receivables that are not credit impaired but with
significant increase in credit risk. There is a rebuttable presumption that the credit risk has
increased significantly since initial recognition if contractual payments are more than 30
days past due.

Stage 3 – Assess individually the receivables to determine whether they are credit-impaired.

Receivable Financing 4. Any transaction cost incurred is a

finance cost
Pledging/General Assignment of Account
receivable

1. Accounting for receivable is not Specific Assignment of Account

affected, disclosure is required for the receivable
receivables pledged or assigned.
1. Reclassify the receivable as Receivable -
2. Recognize the proceeds of the Assigned
borrowing as a liability
2. Recognized the proceeds of the
3. Charge interest on the carrying value of borrowing as a liability and charge
the liability interests accordingly
3. Any transaction cost incurred is a 1. Risks and Rewards of ownership
finance cost transferred to the Buyer—treated as
outright sale

2. Risks and Rewards of ownership not

transferred to the Buyer – treated as
borrowings

Discounting Notes Receivable

With Recourse— treated as a borrowing

Without Recourse – treated as a sale

Factoring of Accounts receivable

Computation of Cash Proceeds of Notes Receivable Discounting

1. Compute for the maturity value of the note receivable = Principal + Total Interest Income

2. Compute for the discount = Maturity Value x Discount Rate x Discount Period

3. Compute for the proceeds = Maturity Value – Discount