Accounts Receivables

Classification of receivables Your audit disclosed that on December 31, 2010, the accounts receivable control account of Alilem Company had a balance of P 2,865,000. An analysis of the account showed the following: Accounts known to be worthless Advance payments to creditors on purchase orders Advance to affiliated companies Customer’s account reporting credit balances arising from sales return Interest receivable on bonds Other trade accounts receivable – unassigned Subscriptions receivable due in 30 days Trade accounts receivable – assigned (Alilem company’s equity in assigned accounts is P 150,000) Trade instalment receivable due 1-18 months, including unearned finance charges of P 30,000 Trade receivables from officers due currently Trade accounts on which post-dated checks are held ( no entries were made on receipts of checks)

P 37,500 150,000 375,000 (225,000) 150,000 750,000 825,000 375,000 330,000 22,500 75,000 P 2,865,000

Questions: 1. The trade accounts receivable as of December 31, 2010 is 2. The net current trade and other receivables as of December 31, 2010 is 3. How much is the forgoing will be presented under noncurrent assets as of December 31, 2010?

Computation of adjusted trade receivables, allowance for doubtful accounts and doubtful accounts expense

Your audit of Banayoyo Corporation for the year ended December 31, 2010 revealed that the Accounts Receivable account consists of the following: Trade accounts receivable (current) Past due trade accounts Uncollectible accounts Credit balances in customers’ accounts Notes receivable dishonoured Consignment shipments – at cost The consignee sold goods costing P 96,000 for P 160,000. A 10% commission was charged by the consignee and remitted the balance to Banayoyo. The cash was received in January, 2011. Total

P 3,440,000 640,000 128,000 (80,000) 240,000

320,000 P 4,688,000

The balance of the allowance for doubtful accounts before audit adjustment is a credit of P 80,000. It is estimated than an allowance should be maintained to equal 5% of trade receivables, net of amount due from the consignee who is bonded. The company has not provided yet for the 2010 bad debt expense. Questions: 1. The trade accounts receivable 2. Allowance for doubtful accounts 3. Doubtful accounts expense

Audit of bad debt reporting Presented below are a series of unrelated situations. Answer the following questions relating to each of the independent situations as requested. 1. Bantay Company’s unadjusted trial balance at December 31, 2010, included the

Following accounts: Debit Credit Accounts receivable P 1,000,000 Allowance for doubtful accounts 40,000 Sales P 15,000,000 Sales return and allowance 700,000 Bantay Company estimate its bad debt expense to be 1 ½% of net sales. Determine its bad debt expense 2. An analysis and aging of Burgos Corp. accounts receivable at December 31, 2010, disclosed the following: Amounts estimated to be uncollectible P 1,800,000 Accounts receivable 17,500,000 Allowance for doubtful accounts (per books) 1,250,000 What is the net realizable value of Burgos’ receivables at December 31, 2010? 3. Cabugao Company provides for doubtful accounts based 3% of credit sales. The following data are available for 2010. Credit sales during 2010 P 21,000,000 Allowance for doubtful accounts 1/1/10 170,000 Collection of accounts written off in prior years (Customer credit was re-established) 80,000 Customer accounts written off as uncollectible \ During 2010 300,000 What is the balance in allowance for doubtful accounts at December 31, 2010? 4. At the end of its first year of operations, December 31, 2010, Caoayan, Inc. reported the following information: Accounts receivable, net of allowance for doubtful accounts Customer accounts written off as uncollectible during 2010 Bad debts expense for 2010

P 9,500,000 240,000 840,000

What should be the balance in accounts receivable at December 31, 2010, before subtracting the allowance for doubtful accounts? 5. The following accounts were taken from Cervantes Inc.’s statement of financial position at December 31, 2010. Debit Credit Accounts receivable P 4,100,000 Allowance for doubtful accounts 100,000 Net credit sales P 7,500,000

If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2010.

Analysis of accounts receivable and related accounts The adjusted trial balance of Galimutod Company as of December 31, 2009 shows the following: Debit Credit Accounts receivable P 1,000,000 Allowance for bad debts P 40,000 Additional information:  Cash sales of the company represents 10% of gross sales.  90% of the credit ssales customers do not take advantage of the 2/10, n/30 terms.  It is expected that cash discount of P 6,000 will be taken on accounts receivable outstanding at December 31, 2010.

 Sales returns in 2010 amounted to P 400,000. All returns were from charges sales  During 2010, accounts totalling to 44,000 were written off as uncollectible; bad debt recoveries during the year amounted to P 3,000.  The allowance for bad debts is adjusted sso that it represents certain percentage of the outstanding accounts receivable at year end. The required percentage at December 31, 2010 is 150% of the rate used on December 31, 2009. Questions: Based on the above and the result of your audit, answer the following: 1. 2. 3. 4.

The accounts receivable as of December 31, 2010 is The allowance for doubtful accounts as of December 31, 2010 is The net realizable value of accounts receivable as of December 31, 2010 is The doubtful account expense for the year 2010 is

Analysis of accounts receivable and related accounts In your audit of Lidlidda Plastic Products Co., you noted that the company’s statement of financial position shows the accounts receivable balance ar December 31, 1009 a follows: Accounts receivable Allowance for doubtful accounts

P 3,600,000 72,000 P 3,528,000

During 2010, transactions relating to the accounts were as follows:  Sales on account P 38,400,000.  Cash received from collection of current receivable totalled P 31,360,000, after discount of P 640,000 were allowed for prompt payment.  Customer’s accounts of P 160,000 were ascertained to be worthless and written off.

 Bad accounts previously written off prior to 2010 amounting to P 40,000 were recovered.  The company decided to provide P 184,000 for doubtful accounts by journal entry at the end of the year.  Accounts receivable of P 5,600,000 has been pledged to a local bank on a loan of P 3,200,000. Collections of P 1,200,000 were made on these receivables ( not included in the collection previously given) and applied as partial payment to the loan. Questions: Based on the above and the result of your audit, answer the following: 1. 2. 3. 4.

The accounts receivable as of December 31, 2010 is The allowance for doubtful accounts as of December 31, 2010 is The net realizable value of accounts receivable as of December 31, 2010 is If receivable are hypothecated against borrowings, the amount of receivables involved should be

Analysis of accounts receivable and related accounts Cardis Corp. the following data relating to accounts receivable for the year ended December 31, 2010: Accounts receivable, January 1, 2010 Allowance for doubtful accounts, January 1, 2010 Sales during the year, all on account, terms 2/10, 1/15, n/60 Cash received from customers during the year Accounts written off during the year

P 480,000 19,200 2,400,000 2,560,000 17,600

An analysis of cash received from customers during the year revealed that P 1,411,200 was received from customers availing the 10-day discount period, P 792,000 from customers availing 15-day discount period, P 4,800 represented recovery of accounts written-off, and the balance was received from customers paying beyond the discount period. The allowance for doubtful accounts is adjusted so that it represents certain percentage of the outstanding accounts receivable at year end. The required percentage at December 31, 2010 is 125% of the rate used on December 31, 2009.

Questions: Based on the above and the result of your audit, answer the following: 1. The accounts receivable at December 31, 2010 is 2. The allowance for doubtful accounts at December 31, 2010 is 3. The doubtful account expense for the year ended December 31, 2010

Analysis of notes receivable; Notes receivable discounting Vontar company has the following transactions in 2010 involving notes receivable: May 1 1 Jul.30 Aug. 1 Sep. 1 the note 28 Oct. 1 Nov. 1 bank Dec. 30 31 Questions:

Received a P 1,000,000, 90-day, 12% interest bearing note from A company on settlement of account. Received a P 1,500,000, six-month, 12% interest bearing note from B Company in settlement of account. A Company defaulted on the P 1,000,000 note Discounted the B Company note at a bank at 15% Received a one-year noninterest bearing note from C Company in settlement of a P 600,000 accounts receivable. The face value of was P660,000. Collected the defaulted A company note plus accrued interest at 12% per annum on the total amount due. Received a P 2,500,000, 90-day note from D Company. The note is for the payment goods purchased and bears interest at 12% B Company defaulted on the P 1.500,000 note. Vintar Company paid the bank the total amount due plus P 60,000 for protest fee and other charges. Collected D Company note in full. Collected from B Company in full including interest on the total amount due at 12% since default date.

Based on the above and the result of your audit, answer the following: 1. 2. 3. 4.

The proceed from discount B Company note on August 1, 2010 The amount collected on September 28, 1010 on the defaulted A Company note is The amount collected on December 31, 2010 on defaulted B Company note is The interest income to be recognized in 2010 related to these transactions is

Receivable financing Taguding Co. required additional cash for its operation and used accounts receivable to raise such needed cash, as follows: 

On December 1, 2010 Tagudin Company assigned on a nonnotification basis accounts receivable of P 5,000,000 to a bank in consideration for a loan of 90% of the receivables less a 5% service fee on the accounts assigned. Tagudin signed a note for the bank loan. On December 31, 2010, Tagudin collected assigned accounts of P 3,000,000 less discount of P 200,000. Tagudin remitted the collections to the bank in partial payments for the loan. The bank applied first the collection to the interest and the balance to the principal. The agreed interest is 1% per month on loan balance.

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Tagudin Co, sold P 1,550,000 of accounts receivable for P 1,340,000. The receivables had a carrying amount of P 1,470,000 and were sold outright on a nonrecourse basis.

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Tagudin Co, received an advance of P 300,000 from Union Bank by pledging P 360,000 of accounts receivable.

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On June 30, 1010, Tagudin Co. discounted at a bank a customer’s P 600,000, 6month, 10% note receivable dated April 30, 2010. The bank discounted the note at 12% on the same date.

Questions: Based on the above and the result of your audit, answer the following: 1. In its December 31, 2010 statement of financial position, Tagudin should report note payable as a current liability at

2. Tagudin company’s equity in the assigned accounts receivable as of December 31, 2010 is 3. The entry to record the sale of accounts receivable would include 4. Accounts receivable pledged against borrowings, should be 5. The proceeds from the note receivable discounted on June 30, 2010 is

ACCOUNTS RECEIVABLES Trade receivables  Accounts receivable-with promissory note  Customer’s trade debtors  Trade accounts receivable  Notes receivable-without promissory note Nontrade receivables-claims from other sources other than  sale of merchandise  services in the ordinary course of business Banks and other financial institution  LOANS TO CUSTOMERS Note: Current assets (trade & nontrade)– w/n normal OC or one year Noncurrent assets – collectible beyond one year

Nontrade receivables 1) Advances to or receivables from shareholders, directors, officers or employees. (collectible w/n one year-current assets) 2) Advances to affiliates – long term investment 3) Advances to supplier-current assets 4) Subscription receivables- (collectible w/n one year-current assets) -deduction to subscribed share capital 5) Creditor’s account- debit balance when overpayment or returns and allowances current assets-Not material OFFSET 6) Special deposits- noncurrent assets* remain outstanding for long period -(collectible w/n one year-current assets) 7) Accrued income- current assets

 Dividends receivable  Accrued rent income  Accrued royalties income  Accrued interest on bond investment 8) Claims receivable; current assets Claims against common carriers for loss or damages current assets Claim for rebates and tax refunds current assets Claim for insurance entities current assets Note: Customer’s credit balances – current liabilities Initial measurement of receivables PFRS 9,paragraph 5.1.1 Financial asset –initially recognize @ FAIR VALUE+ transaction cost  Usually TRANSACTION PRICE-=FMV of consideration given  Short-term receivables=FACE VALUE or original invoice amount  Accounts receivable - initially FACE VALUE or original invoice amount - Subsequently NET REALIZABLE VALUE(NRV)  Long term receivables that are interest bearing FAIR VALUE = FACE VALUE  Long term receivables -noninterest bearing FAIR VALUE = PRESENT VALUE SALES DISCOUNT for prompt payment  Cash discount – reduction from an invoice price  Also known as SALES discount – SELLER ( debit)-(credit if forfeited)  PURCHASE discount – BUYER GROSS METHOD – GROSS AMOUNT OF THE INVOICE NET METHOD= INVOICE PRICE-CASH DISCOUNT BAD DEBTS

Allowance Method 

GAAP requires this method b’coz it conforms MATCHING PRINCIPLES

Doubtful of collection

DA

xx AFDA



Worthless or uncollectible (written off)

AFDA

xx xx

AR

xx