Cash & Cash Equivalents Trade Receivables

Cash (Theories) 1. Accounts receivable

● IM: Face Value
● SM: Face Value
● Examples:
1. Cash on hand (i.e. bills and coins)
2. Cash in bank
3. Demand deposits - SM: Net Realizable Value
4. Checks that may be encashed immediately - NRV - deducting
5. Cash set aside for funds used in current operations 1. Sales Returns
Other Considerations 2. Sales Discounts
1. Bank Overdraft - classified as a CL, unless has 2 or more 3. Freight Charges
accounts in the same bank and one of them has a negative 4. Doubtful Accounts
balance 1.1 Bad Debts / Uncollectible Accounts
2. Compensating balance - part of cash only if not legally (1) Direct write-off method, or;
restricted (2) Allowance method
3. Postdated checks drawn, Stale checks and Undelivered
checks - included because the entity still has unrestricted use
over them until the check is ready for encashment
Cash Equivalents
● IM: Face Value
● SM: Face Value
● Examples:
1. 3-month Treasury bill
2. 90-day money market instruments
3. 3-month time deposits
Other Considerations
- GR: Equity Instruments excluded
- XPN: Redeemable Preference Shares acquired within - For ending balance:
3 months from its redemption date
For PROBLEM SOLVING:
Include:
1. Cash in Bank (unless restricted) - Estimation methods:
a. Undelivered Check
b. Checking Account
% of Sales % of Receivables Aging of
c. Payroll Receivables
d. Savings Deposit
Nature % of Credit Sales % of Gross Rec, Percentage table
e. Money Market Instrument within 3 months
f. Compensating Balance - if NOT Legally Restricted Write-off amount Ending balance Ending Balance
Impact
2. Cash on hand (debit amount)
3. Checkbook Balance
4. Cash Equivalents - maturing within 3 month Receivable Financing - raising funds by utilizing existing receivables
5. 1. Pledging and Assignment

Loans and Receivables

Receivables
- Financial assets arising from a contractual right to receive
cash
- Falls under 4 categories (PFRS 9)
1. FAAC
2. FAFVPL
3. FAFVOCI
- Loans and Receivables - non-derivative financial assets with
2. Factoring - absolute sale and transfer of ownership to a bank
fixed maturity
or financing entity
- The ff. occurs during factoring:
1. Accounts are derecognized
2. Gain or loss is recognized
3. Any service fees and interest charged is directly
deducted
4. Factor’s holdback - ade to secure the factor
from any possible uncollectible accounts

3. Discounting - transfer of endorsement of note by the payee in

favor of another party. The endorsement may be:
 Types of Inventories
1. Goods in Transit
2. Consigned Goods
3. Pledge of Inventory
4. Lay-away Sales
5. Bill and Hold Sales
Measurement
- IM & SM - LCNRV
- NRV - Selling Price - Cost of Completion & Selling
Nontrade Receivables Costs
- Monetary items arising from lending transactions. - No impairment
- Normally long term - Cost of Inventories
- Should be stated at PV: 1. Cost of Purchase - PP, ID, non-recoverable taxes
a. Face value (short-term and interest bearing) 2. Cost of Conversion - DL, VOH and FOH
b. Discounted value (non-interest bearing and 3. Other Costs - bringing the inventories to their present
unreasonably low interest) location and condition
- Factors to consider: - VAT is:
1. Interest bearing on non - Excluded - VAT Taxpayer
2. Effective rate = or =/= to nominal rate - Included - non-VAT Taxpayer
a. Nominal rate/face rate/coupon - Excluded from Cost:
rate/contracted rate – stated rate in the note - Abnormal amounts of wasted materials
b. Effective rate/market rate/yield rate – rate - Storage costs, unless necessary
used in the market to discount to present value - Administrative OH
c. If ER > NR = discount - Selling Costs
d. If ER < NR = premium Deferred Settlement Terms
3. Timing and manner of payment - Purchase Price - Amount Paid
4. Maturity period - Recognized as interest expense over the period
5. Direct cost and fees made to originate the financing Service Providers
agreement - Cost of production
a. Origination costs – costs that are expended - Should not include profit margins or non-attributable overhead
by the lender in order to process a loan Accounting for Inventories
application but are not chargeable against the
borrower
i. Direct – deferred cost
ii. Indirect – expensed immediately
b. Origination fees – also costs to process a loan
application, except that it is chargeable against
the borrower. Accounted for as unearned
interest income.
Direct origination costs – origination fees = net deferred costs or net
unearned interest income

Impairment of Nontrade Receivables

- Assessing factors
1. Significant financial difficulty of the debtor, issuer or
obligor
2. Default or delinquency in interest or principal payments
3. The creditor granting the debtor a concession that the
creditor would not otherwise consider
4. Probability that the borrower will enter bankruptcy or
other financial reorganization or restructuring
5. Disappearance of an active market for that financial
asset because of financial difficulties
6. Indication that there is a measurable decrease in the
estimated future cash flows from the group of financial
assets
**Carrying Amount - PV of Estimated Future Cash Flows = Impairment Loss
- Either: (1) Direct deduction; or (2) Allowance accounts with the loss
recognized in P/L
- Reversals of impairment are allowed and a ‘gain on reversal of
impairment’ is recorded.
Cost Formulas
- Restriction: New recoverable amount should not be more
than the would have been carrying amount if the impairment
was not originally recognized
Inventories (PAS 2)
- Defines as assets:
a. Finished Goods
b. Work in Process
c. Raw Materials and Manufacturing Supplies Recognition as Expense
- All inventory, except: - Write-down of inventories to NRV and all losses of inventories
a. Financial Instruments - Reversal of write-down - recognized as a reduction in the
b. Biological Assets related to Agricultural activity and amount of inventories recognized as an expense.
Agricultural produce at the point of harvest Inventory Estimation
- Measurement does not apply to inventories held by: