Summary: Accounts Receivables

 The purpose of the standards is to create principles that is relevant and useful
information to the users of financial statement for the assessment of the amounts,
timing and uncertainty of an entity’s future cash flows.
 Receivables are assets that represents contractual rights to receive cash or other
assets from another entity.
 Regular way purchase or sale of financial assets shall be recognized and
derecognized, as applicable, using trade date accounting or settlement date
accounting.
 Trade receivables that do not have financing component are measured at their
transaction price.
 Trade receivables may not be discounted if it is due within 1 year.
 Receivables are initially recognized at fair value plus the transaction costs.
Receivables:
 Accounts receivable
 Notes receivable – written or formal promises to pay. (some notes receivable
are supported by postdated checks)
 Loan receivable
 Advances
 Accrued income – receivables arising from income earned but not yet
collected (dividend income, interest income)
 Deposits
 Claims receivables
Classification of financial assets
 (A) Financial asset shall be measured at amortized cost:
 (1) If within business objective is to hold financial assets in order to
collect contractual cash flows
 (2) If the contractual terms gives rise on specified dates to cash flow that
are only payments of principal and interest on the principal amount
outstanding
 (B) Financial assets shall be measured at fair value through comprehensive
income only if:
 (1) A business model whose objective is achieved by both collecting
contractual cash flow and selling financial assets
 (2) If the contractual terms gives rise on specified dates to cash flow that
are only payments of principal and interest on the principal amount
outstanding
 (C) Financial assets shall be measured at fair value through profit and loss if it is
measured at amortized cost in related to (A) and (B).
Initial Measurement
 (A) At initial recognition, entity shall measure a financial asset and financial
liability not at fair value through profit and loss, transaction costs shall related
attributable to the acquisition or issue of the financial asset and financial liability
 (B) And when fair value of the financial asset and financial liability at initial
recognition differs from the transaction price. Concept (C) shall apply
 (C) For instance when an asset is measured at amortized costs and uses settlement
date accounting for an asset, the asset is recognized at its fair value on the trade.
 (D) Trade receivables measure at their transaction price
Subsequent measurement of financial assets
 Accounts receivable are subsequently measured as recoverable historical cost (or
net realizable value)
After initial recognition:
 Financial assets
 Amortized costs
 Fair value through other comprehensive income
 Fair value through profit or loss
 Financial Liabilities
 Fair value through profit or loss (e.g. including derivatives that are
considered liabilities, shall be subsequently measured at fair value)
 Financial liabilities arise when a transfer of a financial asset does not
qualify for derecognition or when the continuing involvement approach
applies
 Financial guarantee contracts
Amortised cost measurement: financial assets (effective interest method)
 Interest revenue shall be calculated by using the effective interest method
 In a reporting period, calculate interest revenue by applying the interest
method to the amortized cost of a financial cost of a financial assets
 In subsequent reporting periods, calculate interest revenue by applying the
effective interest rate to the gross carrying amount
 Write off an entity shall directly reduce the gross carrying amount of a financial
asset (e.g. a receivable)
 Write off when the entity has no reasonable expectations of recovering a financial
asset in its entirety or a portion thereof.
 A write-off constitutes a derecognizing event
 Allowance method of recognizing bad debts on the accounts receivables is used
for financial reporting purposes
 Doubtful accounts may be estimated using:
 (A) percentage of credit sales
  (B) percentage of receivables
 (C) aging of receivables

 The amount computed under the percentage of credit sales method is the bad
debts expense for the period
 The amount computed under the percentage of receivables and aging methods is
the required balance of the allowance account