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 P 37,500
Advance payments to creditors on purchase orders 150,000
Advance to affiliated companies 375,000
Customer’s account reporting credit balances arising
from sales return (225,000)
Interest receivable on bonds 150,000
Other trade accounts receivable – unassigned 750,000 Subscriptions receivable due in 30 days 825,000 Trade accounts receivable – assigned (Alilem company’s
equity in assigned accounts is P 150,000) 375,000 Trade instalment receivable due 1-18 months,
including unearned finance charges of P 30,000 330,000 Trade receivables from officers due currently 22,500 Trade accounts on which post-dated checks are held ( no
entries were made on receipts of checks) 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) P 3,440,000
Past due trade accounts 640,000
Uncollectible accounts 128,000
Credit balances in customers’ accounts (80,000)
Notes receivable dishonoured 240,000
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. 320,000
Total 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.
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 P 9,500,000
Customer accounts written off as uncollectible
during 2010 240,000
Bad debts expense for 2010 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
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
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. The accounts receivable as of December 31, 2010 is
2. The allowance for doubtful accounts as of December 31, 2010 is
3. The net realizable value of accounts receivable as of December 31, 2010 is 4. 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 P 3,600,000
Allowance for doubtful accounts 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.
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. The accounts receivable as of December 31, 2010 is
2. The allowance for doubtful accounts as of December 31, 2010 is
3. The net realizable value of accounts receivable as of December 31, 2010 is
4. 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 P 480,000
Allowance for doubtful accounts, January 1, 2010 19,200 Sales during the year, all on account, terms 2/10,
1/15, n/60 2,400,000
Cash received from customers during the year 2,560,000 Accounts written off during the year 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 Received a P 1,000,000, 90-day, 12% interest bearing note from A
company on settlement of account.
1 Received a P 1,500,000, six-month, 12% interest bearing note from B Company in settlement of account.
Jul.30 A Company defaulted on the P 1,000,000 note Aug. 1 Discounted the B Company note at a bank at 15%
Sep. 1 Received a one-year noninterest bearing note from C Company in settlement of a P 600,000 accounts receivable. The face value of
the note was P660,000.
28 Collected the defaulted A company note plus accrued interest at 12% per annum on the total amount due.
Oct. 1 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%
Nov. 1 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
bank charges.
Dec. 30 Collected D Company note in full.
31 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. The proceed from discount B Company note on August 1, 2010
2. The amount collected on September 28, 1010 on the defaulted A Company note is 3. The amount collected on December 31, 2010 on defaulted B Company note is 4. 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.
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.
Tagudin Co, received an advance of P 300,000 from Union Bank by pledging P 360,000 of accounts receivable.
On June 30, 1010, Tagudin Co. discounted at a bank a customer’s P 600,000, 6-month, 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
CUSTOMERSNote: 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)
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 xxAFDA xx
Worthless or uncollectible AFDA xx
