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FAR Reviewer > Receivables > Flashcards

Receivables Flashcards

1
Q

Definition of Receivable

A

A financial asset that represents a contractual right to receive cash or another financial asset from another entity.

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2
Q

Measurement of Receivable (in general)

A

Initial = Fair value + Transaction costs
Subsequent = Amortized cost

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3
Q

What are the different possible sources of income?

A
  1. Sale of goods
  2. Sale of services
  3. Use of entity’s resources (ex. interest income, rent income)
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4
Q

Classification of Receivables

A
  1. Trade Receivables - arising from ordinary course of business
    Presentation: C.A. if w/in operating cycle or 12 mos., whichever is longer
  2. Non-trade Receivables - arising from other sources
    Presentation: C.A. if w/in 12 mos. only
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5
Q

Presentation in the FS

A

“Trade and Other Receivables” under current assets in the SFP

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6
Q

Measurement of Accounts Receivable

A

Initial = Transaction Price or Invoice Price (net of any related trade discount)
Subsequent = NRV (gross ending balance - allowances)

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7
Q

What is the treatment for credit balances or negative balances in accounts receivable?

A

Presented as current liabilities.
- cannot be offset against receivables with positive balances

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8
Q

What is Trade discount & Cash discount?

A

Trade discount - discount given in bulk purchases; immediately subtracted to the list price to get the invoice price

Cash discount - discount given when paid within the certain period; recorded in the books under gross method

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9
Q

True or False: Trade discounts are not recorded in the books.

A

True

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10
Q

Methods in accounting for Cash discounts

A
  1. Gross method
  2. Net method

Note: see HO for summary of JEs (p. 2 of receivables)

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11
Q

How to compute gross ending balance of accounts receivable?

A

See HO for template (p. 2 of receivables)

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12
Q

What are the four types of allowances in AR?

A
  1. Allowance for sales returns
    Sales returns XX
    Allowance for sales returns XX
  2. Allowance for sales discounts
    Sales discounts XX
    Allowance for sales discounts XX
  3. Allowance for freight charge
    (FOB Destination, Freight Collect)
    Freight out XX
    Allowance for freight charge XX
  4. Allowance for doubtful accounts
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13
Q

How to account for freight charges?

A

FOB Shipping point - chargeable to Buyer
FOB Destination - chargeable to Seller
Freight collect - COD, buyer actually paid
Freight prepaid - adv. payment, seller actually paid

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14
Q

How to account for bad debts?

A
  1. Direct write-off method
  2. Allowance method
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15
Q

Summary of journal entries in accounting bad debts

A

See HO for JEs (p.3 of receivables)

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16
Q

How to compute the ending gross balance of ADA?

A

See HO for JEs (p.3 of receivables)

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17
Q

Definition of Notes Receivable

A

Claims supported by formal promises to pay usually in the form of notes.

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18
Q

What is a promissory note?

A

A written contract where the maker promises to pay the payee a definite sum of money.

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19
Q

Measurement of Notes Receivable

A
  1. ST IB = Face; AC w/out amortization
  2. ST NIB = Face; AC w/out amortization
  3. LT IB w/ reasonable rate = Face; AC w/out amortization
  4. LT IB w/ unreasonable rate = PV; AC w/ amortization
  5. LT NIB = PV; AC w/ amortization
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20
Q

What is reasonable rate?

A

NI = EI

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21
Q

What is unreasonable rate?

A

NI not = EI

22
Q

What is nominal interest rate?

A

agreed rate sa napag-usapan

23
Q

What is effective interest rate?

A

the market rate or implied interest rate

24
Q

How to compute Present Value?

A
  1. Know the CCF
    - LT NIB (1CF) - as of principal
    - LT IB unreasonable (2CFs) - as of principal & nominal interest
  2. Know the timing of the CF
  3. Compute the PV Factor
    - PV of 1 (Lumpsum)
    - PV of O.A. of 1 (Annual & equal, w/o interruption)
    1st payment: 1 period after
    - PV of O.A. of Due (Annual & equal, w/o interruption)
    1st payment: today (advance payment)
  4. Compute the PV (CF * PV Factor)
25
Q

Definition of Loans Receivable

A

A financial asset arising from a loan granted by a bank or other financial institution.

26
Q

Measurement of Loans Receivable

A

Initial: FV + DOC - OF = ICV
Subsequent: Amortized cost

27
Q

What to do when effective interest is not given?

A

Interpolate

28
Q

How to account if ICV > Face Value?

A
  • Premium
  • Deduct from CA
  • NI > EI
29
Q

How to account if ICV < Face Value?

A
  • Discount
  • Add to CA
  • NI < EI
30
Q

How to account for Indirect Origination Costs?

A

Expensed outright

31
Q

What is impairment?

A

Decrease in the CA of a receivable due to objective evidence of loss events.

Carrying Amount > Recoverable Amount

32
Q

How is the carrying amount of loans receivable reduced?

A

Either directly or through the use of an allowance account.

33
Q

How should the impairment loss be recognized?

A

P/L

34
Q

How to compute impairment loss?

A

Carrying amount of loan receivable + PV of recoverable amount

35
Q

Which E.I.R. is used in computing the PV of recoverable amount?

A

Original E.I.R.

36
Q

Definition of Receivable Financing

A

The act of inducing cash inflows from the receivables other than collection on a normal basis.

The financial flexibility of an entity to raise money out of its receivable.

37
Q

Forms of Receivable Financial

A
  1. Pledge/ Hypothecation (AR)
  2. Assignment (AR)
    - Notification basis
    - Non-notification basis
  3. Factoring (AR)
    - Factoring without recourse
    - Factoring with recourse
  4. Discounting (NR)
    - Discounting without recourse basis
    - Discounting with recourse basis
    a. Conditional sale
    b. Secured borrowing

See HO for further info

38
Q

How to compute the proceeds from pledge?

A

Face Value of loan
- Discount of loan (adv. interest)
= Net proceeds from pledge

39
Q

How to compute the proceeds from assignment?

A

Face value of loan (% * face value of AR)
- Commission and other charges
= Net Proceeds from assignment

40
Q

How to get the equity on assigned accounts?

A

CA of AR (gross ending balance of AR template)
- CA of loans payable (Beg. Bal. less payments)
= Equity on assigned accounts (req. disclosure in notes)

41
Q

How to compute the proceeds from factoring?

A

Face Value of AR
- Commission and other charges
+ Factor’s holdback (RFF)
= Net proceeds form factoring

42
Q

How to compute the gain or loss on factoring?

A

Selling Price (Net proceeds + Factors’ Holdback)
- CA of AR (NRV)
= Gain or Loss on Factoring

43
Q

How to compute the proceeds from discounting?

A

Maturity Value (Principal + Total Interest)
- Discount (MV * Discount Rate * Discount Period)
= Net proceeds from discounting

44
Q

How to compute the gain or loss on discounting?

A

Selling Price (Net Proceeds)
- CA of NR (including accrued interest)
= Gain or Loss on Discounting

45
Q

What is Maturity Value?

A

The amount due on the note at the date of maturity.

46
Q

What is discount period?

A

The unexpired term of the note

47
Q

True or False: There is NO gain or loss on factoring if it is on a with recourse basis - secured borrowing.

A

True

48
Q

Journal Entries for Discounting

A

See HO for summary (p. 7 of receivables)

49
Q

What are Dishonored Notes?

A

Notes receivable not collected at maturity.

50
Q

How to account for dishonored notes?

A

Transferred from NR to AR

= Maturity value of note + any direct costs or protest fees

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