Trade receivables

Trade receivables (IFRS 9)

Assets that normally arise from entities selling goods on credit/account

ST and unsecured financial instruments

ASPE Section 3856 is comparable - NRV changes

Conditions to classify trade receivables at amortized cost (2)

1. Financial asset held in business whose objective is to collect contractual CF on it

2. Contractual terms give rise to CF on specified dates consisting of payments of principal and interest

Non-trade receivables

Amounts due to entity are unrelated to selling goods or services

Includes amounts from tax refunds, wage advances, and insurance claims

Trade receivables initial measurement

A/R is recognized when the seller settles the performance obligation by transferring goods

Recorded at the transaction price (fair value at transaction date)

Under IFRS, include transaction costs (PV) with the exception of <1 yr ST receivables

Payment terms and discounts

Terms indicate timing and amount of cash to be paid

Recorded either gross or net method

Gross method of trade receivables

Records A/R and revenue at full invoice value

If paid before date, discount reduces revenue recorded

Dr. A/R / Cr. Sales revenue - full

Dr. Cash Dr. Sales discount / Cr. A/R

Net method of trade receivables

Records A/R and revenue assuming discount is taken, if customer doesn’t take the discount then record it as interest revenue at time of settlement

Dr. A/R / Cr. Sales revenue - net

Dr. Cash / Cr. A/R Cr. Other revenue

Trade receivables subsequent measurement

A/R is reported at transaction price less AFDA

Allowance for doubtful accounts (AFDA)

Allowance for credit losses on A/R

Can be written up/down through impairment (BDE) in profit/loss

Aging of A/R for calculating AFDA (B/S approach)

Older = greater expected credit risk

Uses percent of aged A/R at year end to determine AFDA

AFDA balance calculated is compared to the current AFDA in the GL, JE made to account/adjust the difference

Dr. BDE / Cr. AFDA

Percent of credit sales to calculate AFDA (I/S approach)

Calculate credit sales by applying a rate

Dr. BDE / Cr. AFDA

Derecognition of A/R

Reasons: collected, written off, transferred to 3rd party

Write-offs have a net impact of 0 on AFDA as the entry nets it against A/R 1:1

Dr. AFDA / Cr. A/R

Recovery of written off amount

JE to reinstate the A/R and record the receipt of cash - no effect on BDE

Dr. A/R / Cr. AFDA

Dr. Cash / Cr. A/R