3-4 Receivables

Current assets

Sfp

Trade and other receivables

Receivables are presented in _____ section of the statement of ______ under the heading ______.

receivables

financial assets that represent a contractual right to receive cash or other financial assets from another entity

accounts receivable and notes receivable

trades receivable are composed of

non-trade receivables

Accrual assumptuion

An ___ mandates firms to recognize an asset from credit transactions that represents claims from another party

Claims receivable

Interest

Advances to affiliates

Examples of non trade receivables

Claims receivable

Interest receivable

advances to affiliates

Represents amount to be collected from an insurance company for any claims in one's insurance policy

Amount of interest already earned but not yet received; represents the interest accrued as if year-end

Such as employees and suppliers represent amounts given in advance to such parties which are expected to be received in the future

No formal written promise to pay our no promissory note required of debtor

An agreement being open account means

PFRS 9: financial instruments

States that financial assets should be recognised at fair value

At face value

At nrv

Prudence, it is required

How receivables are recognised at initial recognition and subsequent recognition

What principle supports subsequent recognition

1. When contractual rights expire

2. Entity transfers receivables and transfer qualifies for derecognition

1. Collection of account receivable or its write off

2. Factoring transaction where entity sells its accounts receivables

When is an account receivable derecognized or removed from books

When does the two scenarios happen?

Difference between gross receivables and allowance for doubt accounts

What is the nrv receivables formula

Contra-receivable account

What account is allowance for doubt accounts

Sales discounts, sales returns, allowances

What else affects the nrv

Year end, matching principle

When should entity recognise amounts estimating discounts, returns, and etc? And according to what principle

written off from a company

absconded, bankruptcy

what happens when ar is deemed worthless

give examples

other income

what should company recognize recovered written off account as

notes receivable

also a trade receivable but more formal claim

has a document

can be short or long term

open

does not earn interest

a note is interest bearing normally whereas an ar is an ________ account

present value

so that nominal/face value of cash would be less, as recognization of factors like inflation

a long term note is recognized at its

reason ?

market rate

present value of a note

effective interest rate is also known as

its used to determine

coupon rate

effective interest rate

note is a non-interest bearing one

determines the cash that payee will recieve regularly from note

determines interest income to be recorded by payee

when nominal rate is zero it means…

note is at discount

pv lower than fv

what happens if nominal rate is lower than effective interest rate

performance and condition

2 key performance measures of fs

financial ratios

average collection period and AR turnover

net credit sales/ Average AR

ratio that takes into account reltionship between elements in the FS

examples of answer above

AR

Average Collection Period

365/ar turnover

used to quantify a company’s effectiveness in collecting receivables

number of days it takes for entity to collect from credit clients

PV = FV (1+i) ^-t

PVOA = P [1-(1+i)^-t/i]

present value - face amount of note

present value formula of a single sum

fv is both the face value of the principal and the future value

present value formula of interest

how to get discount

discount on notes receivable

the difference between face amount of note and its initial PV is called

decreases

increases

in subsequent recognition of notes discount, ever end of the period, the balance of the discount _, while the carrying amount of the note _

premium situation

addition

premium, amortization of interest

what if the effective rate was lower than nominal rate

what happens to NR when this is the case?

every end of the period, the balance of p****** decreases as the _ increases

non interest

30-90

trade receivablles are (interest/non-interest) bearing and generally have a settlement term of _ days

pledging

doesnt

default of debt by debtor

not be

disclosure

__ refers to offering accounts receivable as collateral

the ownership (does/doesnt) transfer to ownership yet. the ownership only transfers if…

for financial acct purposs, accts receivable tat are pledged will be/not be removed despite pledging agreement, only a _____ is required

assignor

assignee

ar

firm

ar-assigned

under this scheme, the entity, called the (_) obtains a loan from a creditor, who is the (_). the loan is to be repaid by the collection of the _ assigned to the creditor.

when the ar is assigned, the responsibility of collecting the accounts may be given by the firm to the creditor. however, the owner of the accounts is still the —

a new account called ___ is then set-up

notif or non notif basis

assignment of an ar is done on a ___ basis

net position

____ is also known as the equity in the assigned accounts

factored

factor

when the ar are ____, the entity actually sells its accounts receivable to a buyer called a _____.

doesnt pay

the factor pays/doesnt pay seller the whole face value of receivables factored

entity

who bears loss in case of non collection of accounts

factoring ar requires a __ of accounts receivablr

discounting of notes receivable

_____ is undertaken when entity wants to have its notes turned into cash prior maturity date

w recourse - the bank may go aft entity to collect maturity value of note

v/o recourse - the bank can no longer collect from entity

notes can be discounted with or without recourse