Chapter 6 MEASUREMENT

A. INITIAL:
Cash and Cash Equivalents Receivables (loan and receivables) Fair value + transaction cost
Financial asset (contractual right)
CASH Fair value – is the price that would be received to sell
PAS32, PFRS 9, PAS 1, PAS 7 A. Current or Non-current an asset or paid to transfer a liability in an orderly
Most liquid- safeguard Current receivables transaction (PFRS 19)
- Cash on hand, cash in bank, cash fund o Collect within 1 year or during the current
operating cycle, whichever longer Time value of money
 Petty Cash (ex. Personal checks, cashier’s checks)
 Demand Deposit and Time deposit B. Trade or Non-trade ↑ period until maturity = ↑ diff
 Undeposited checks Trade receivables Maturity of receivable and Present Value
 Foreign currencies -arise from normal operating activities
 Bank drafts - normally no interest Short term receivable (w/o interest)
 Money Orders a. Accounts receivable (invoice & delivery o measured:
receipt) MATURITY VALUE = ORIGINAL PRICE
 Deposit in foreign bank Additional aspect of credit sales: not present value
Discounts B. SUBSEQUENT
NOT PART OF CASH Sales return and allowances Loans and receivables
Deposit (w/ restriction) Bad debts or uncollectible account At amortized cost using the effective interest
- Cash equi. b. Notes receivable method (PFRS 9)
- Long-term/ short term investment Amortized cost - receivable amount at the date of
Cash (w/ restriction) RECOGNITION acquisition. Long term receivable.
- Investment
- Entity becomes a contractual party
- Receivable o Principal payment
- Criteria of revenue (fulfilled)
- Other asset o Amortization of premium or discount
Revenue
Cash balances (cash set aside) o Impairment or estimated uncollectability
o Realization has occurred and the revenue is
earned
BANK OVERDRAFT Net Realizable Value – short term receivable- no
o Time of sale (trade receiv)
COMPENSATING BALANCES discounting of the principal amount or any
o Defer revenue – right to return (PAS 18)
- Current asset (arise from current liability) discounting
- Non-current asset (arise from non-current liability)
REVENUE = RECEIVED & RECEIVABLE
but this is deferred because, “fair value” may C. UNCOLLECTIBLE OR IMPAIRED A/R
CASH EQUIVALENTS be less than the nominal amount of Recognition of Expected Credit Losses (ECLS)
Investment- readily convertible receivable
PAS 39 (Loss model) → PFRS 9 (Expected Credit Loss model)
Near maturity interest revenue = fair value – nominal
Acquired 3 months before maturity amount Principle of ECL MODEL
on-current asset (arise from non-current liability) VALUED: reflect the general pattern of deterioration or
Original exchange price less cash discount, sales ret. improvement in the credit quality of financial
RECOGNITION AND MEASUREMENT OF CASH
& allowances instrument.
Recognized: FAIR VALUE (payable on demand) ↓ Depend on extent of credit deterioration since
Fair value initial recognition.
FAIR VALUE – presumption that the entity is a going concern
w/o any intention or need to liquidate

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARD (YEAR 1) CHAPTER 6: CASH AND CASH EQUIVALENTS; RECEIVABLES- CABRERA
 Credit Loss Market value = present value determined by CREDITOR (impaired loan)
Contractual cash flow that are due to an entity discounting all future payments on the note using an
Less imputed interest rate - New carrying value = present value of expected cash
Cash flow that entity expect to receive flows discounted at the loan’s effective interest rate
If received or issued for cash; or
Credit loss discounted at the original effective Measured by: CASH PROCEEDS New carrying value = loan’s market value
interest rate -
d. Note issued for non-cash consideration - Does not expect collect interest
- Does expect present value or loan’s market value
Notes Receivable Principal of the note
BELOW THE CREDITOR’S INVESTMENT IN THE LOAN
o Discounting all future payment on the note as
 Written agreement
imputed interest rate MEASURED (impaired loan)
N/R vs. A/R
e. Note exchange for cash and other privileges 1. Loan-to-loan basis
- Negotiable instrument (transferable) 2. Group basis
- Usually involve w/ interest Recorded at: PRESENT VALUE (using appropriate
interest rate) PROCEDURES OF IMPAIRMENT OF LOANS &
RECOGNITION AND MEASUREMENT FO SHORT RECEIVABLES (PFRS 9)
TERM NOTES Companies accept a note with interest rate lower
Consideration in evaluating the possible deterioration of debt-
than the market value in exchange for cash or
a. Interest bearing note on the Face amount of the note. playing capacity
other consideration (equal to the face value of
note) 1. Significant financial difficulty
Listed as: FACE VALUE + interest rate to face value
Other right and privileges must be received by 2. Breach of contract
Initially recorded at: PRESENT VALUE
other entity; Fair transaction 3. Lender granting to the borrower concession that the
Short term interest bearing notes lender not otherwise consider
f. Dishonored notes 4. Borrower will enter bankruptcy
Present value (future cash receipt) = face
Not renewed or collected at maturity 5. Disappearance of active market for the Financial
value (note)
Asset
Interest continues to accrue on the face value + 6. Observable data
Issuance:
previously accrued interest at the interest rate set a. Adverse changes in the payment status
Face value (Dr.)
by law b. National or local economic conditions that
Subsequent: correlates with defaults on the asset in the group
Payee transfer the note to a special receivable
Interest revenue
account and initiates collection efforts PRESENTATION AND DISCLOSURE REQUIREMENT OF
Interest receivable (year-end adjustment)
LOAN RECEIVABLE IMPAIRMENT AND RECEIV.
b. Non-interest bearing note 1. Segregate and report the carrying amounts
Maturity value (principal & implicit interest) = UNCOLLECTIBILITY 2. Indicate; current and non-current (financial position)
Face value LOAN 3. Offset the valuation accounts that are impaired.
Every notes have interest - Contractual right 4. Fair value receivables permit to compare with its
o Interest is being included in the face value - Money on demand or on fixed/determinable dates carrying amount
rather than being stated as separate rate. - Includes Notes and Accounts Receivable 5. Disclose collateral in receivable pledge
IMPAIRED LOAN 6. Disclose credit risk
c. Interest bearing note with unrealistic interest rate. - Payment is delayed 7. ECL estimates and changes in credit risk

Recorded at: FAIR VALUE or MARKET VALUE CREDITOR INVESMTNET IN LOAN

- Amount initially recorded + accrued interest.

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARD (YEAR 1) CHAPTER 6: CASH AND CASH EQUIVALENTS; RECEIVABLES- CABRERA