Receivable
Financing
LOAN
SALE
WITH RECOURSE
WITHOUT RECOURSE
PLEDGING
ASSIGNMENT
FACTORING
DISCOUNTING
WITH RECOURSE
WITHOUT RECOURSE
PAYABLE
PLEDGING
CASH
xx
NOTES PAYABLE
RECEIVABLE
xx
DISCLOSURE IN THE
NOTES TO THE FS
GENERAL
RECEIVABLES
ASSIGNMENT
SPECIFIC
RECEIVABLES
CASH
xx
NOTES PAYABLE
xx
ARA
AR
ARA = Accounts Receivable - Assigned
xx
xx
FACTORING ( ACCOUNTS RECEIVABLE )
ACCOUNTS RECEIVABLE FACTORED
FACTORING FEE
SALES PRICE OF ACCOUNTS RECEIVABLE
FACTOR’S HOLDBACK
PROCEEDS
XX
(XX)
XX
(XX)
XX
GAIN OR LOSS ON FACTORING
ACCOUNTS RECEIVABLE FACTORED
FACTORING FEE
SALES PRICE OF AR
FACTOR’S HOLDBACK
PROCEEDS
xx
(xx)
xx
(xx)
SALES PRICE OF AR
CARRYING VALUE OF AR
GAIN/LOSS ON FACTORING
xx
xx
(xx)
xx
DISCOUNTING ( NOTES RECEIVABLE )
Maturity Value
Discount
Principal + Interest
Maturity value x Discount rate x Discount period
Remaining period
Proceeds
Maturity value - Discount
GAIN OR LOSS ON DISCOUNTING - Without Recourse
SALES PRICE OF NOTES RECEIVABLE ( PROCEEDS )
CARRYING VALUE OF NOTES RECEIVABLE
GAIN/LOSS ON DISCOUNTING
XX
(XX)
XX
Principal + Interest EARNED
Interest EARNED = Principal x Interest rate x Holding period
Journal entries : November 1
Proceeds from Assignment = 3,000,000 - (3,000,000 x 5 %) = 2,850,000
Cash
2,850,000
Expense
150,000
Loans Payable
3,000,000
AR-A
4,000,000
AR
4,000,000
ACCOUNTS RECEIVABLE - ASSIGNED
11/1 = 4,000,000
11/30 = 3,470,000
12/31= 2,420,000
500,000
30,000
900,000
50,000
100,000
DATE
PAYMENT
INTEREST
12%
REDUCTION IN
PRINCIPAL
CV OF LOANS PAYABLE
11/1
-
-
-
3,000,000
11/30
500,000
30,000
470,000
2,530,000
12/31
900,000
25,300
874,700
1,655,300
Journal entry : February 1, 2019
ACCOUNTS RECEIVABLE FACTORED
300,000
FACTORING FEE (3% x 300,000)
(9,000)
SALES PRICE OF AR
291,000
FACTOR’S HOLDBACK (5% x 300,000)
(15,000)
Cash
276,000
Receivable from factor
15,000
Loss on Factoring
9,000
Accounts receivable
SALES PRICE OF AR
CARRYING VALUE OF AR
LOSS ON FACTORING
PROCEEDS
276,000
300,000
291,000
(300,000)
(9,000)
Total interest is deducted in advance
470,000 + 850,000
PRINCIPAL
500,000
TOTAL INTEREST ( 12% x 500,000 x 6/12 )
(30,000)
PROCEEDS from PLEDGING
470,000
ACCOUNTS RECEIVABLE FACTORED
1,000,000
FACTORING FEE (5% x 1,000,000)
(50,000)
SALES PRICE OF AR
950,000
FACTOR’S HOLDBACK (10% x 1,000,000)
PROCEEDS from FACTORING
(100,000)
850,000
Total interest is deducted in advance
470,000 + 850,000
PLEDGING - loan
FACTORING - sale
TOTAL RECEIVABLES, 12/31/19
600,000
-0600,000
NOTE A
Maturity Value
Discount
Proceeds
FACE VALUE / PRINCIPAL
40,000
INTEREST ( 40,000 x .10 x 12/12 )
4,000
MATURITY VALUE
44,000
44,000 x .15 x 5/12 = 2,750
MATURITY VALUE
44,000
DISCOUNT
(2,750)
PROCEEDS
41,250
NOTE B
FACE VALUE / PRINCIPAL
Maturity Value
Discount
Proceeds
40,000
INTEREST ( 40,000 x .08 x 6/12 )
1,600
MATURITY VALUE
41,600
41,600 x .15 x 4/12 = 2,080
MATURITY VALUE
41,600
DISCOUNT
(2,080)
PROCEEDS
39,520
Journal entries : July 1, 2019 - NOTE B
Interest receivable
NOTE B
Interest income
SALES PRICE OF NOTES RECEIVABLE ( proceeds )
CARRYING VALUE OF NOTES RECEIVABLE
39,520
(40,533)
LOSS ON DISCOUNTING
INTEREST EARNED
CARRYING VALUE OF NOTES RECEIVABLE
(1,013)
40,000
533
40,533
40,000 x .08 x 2 / 12
= 533
533
Cash
39,520
Loss on discounting
1,013
Notes receivable
Interest receivable
FACE VALUE / PRINCIPAL
533
40,000
533
Impairment of
Receivables
IMPAIRMENT LOSS
CARRYING VALUE of Notes Receivable
xx
PRESENT VALUE of Restructured Future Cash In ows
Impairment Loss ( CV > PV )
(xx)
xx
CV of Notes Receivable
Principal only ( No Accrued Interest )
Principal plus Interest ( With Accrued Interest )
PV of Restructured Future Cash Inflows
PV factor based on Original Effective Rate
Condonation of accrued interest
Reduction of Principal
Reduction of Interest rate
fl
fl
Extension of maturity date
Present value of PRINCIPAL
xx
Present value of INTEREST
xx
PV of Restructured Future Cash In ows
xx
5,500,000
CV of Notes Receivable = 5,000,000 + 500,000 = 5,500,000
PV of a single payment at 10% for 3 periods = .7513
Restructured Interest = 4,000,000 x .08 = 320,000
PV of an ordinary annuity at 10% for 3 periods = 2.4869
5,500,000
( 3,801,008 )
1,698,992
Present value of PRINCIPAL ( 4,000,000 x .7513 )
Present value of INTEREST ( 320,000 x 2.4869 )
fl
PV of Restructured Future Cash In ows
3,005,200
795,808
3,801,008
Restructured Interest = 4,000,000 x .08 = 320,000
5,500,000
( 3,801,008 )
1,698,992
Journal entry : December 31, 2019
Notes Receivable - New
4,000,000
Impairment loss
1,698,992
5,000,000
Notes receivable - Old
Interest receivable
500,000
Discount on notes receivable
198,992
4,000,000
FACE VALUE
PRESENT VALUE
(3,801,008)
DISCOUNT ON NOTES RECEIVABLE 198,992
or
DATE
NOMINAL INTEREST
(8%)
EFFECTIVE
INTEREST
(10%)
AMORTIZATION OF
DISCOUNT
CV OF NOTES
RECEIVABLE
12/31/19
-
-
-
3,801,008
12/31/20
320,000
380,101
60,101
3,861,109
5,000,000
12/31/21
320,000
386,111
66,1111
3,927,220
500,000
12/31/22
320,000
392,780
72,780
4,000,000
Journal entry : December 31, 2019
Restructured Notes Receivable
Impairment loss
Notes receivable
Interest receivable
3,801,008
1,698,992
1. How much is the interest income for the year 2019?
2. How much is the interest receivable/accrued interest
2,800,000 x .15 x 9 / 12 = 315,000
2,800,000 x .15 x 9 / 12 = 315,000
for the year 2019?
3. How much is the interest income for the year 2020?
1/1/20 to 3/31/20 = 2,800,000 x .15 x 3 / 12
105,000
4/1/20 to 12/31/20 = 2,100,000 x .15 x 9 / 12
236,250
TOTAL INTEREST INCOME - 2020
341,250
4. How much is the interest receivable/accrued interest for the year 2020?
2,100,000 x .15 x 9/12 = 236,250
5. How much is the carrying value of notes receivable on December 31, 2019?
2,800,000 - 0 = 2,800,000
6. How much is the carrying value of notes receivable on December 31, 2020?
2,800,000 - 700,000 = 2,100,000
RECEIVABLES
TRADE
are claims arising from sale of merchandise or service
in the ordinary course of business operations; such as
the following (a) accounts receivable and (b) notes
receivable.
fi
fi
fi
Classi ed as CURRENT ASSETS if collectible within
one year or within the normal operating cycle
whichever is LONGER
NON-TRADE
are claims arising from sources other than from sale of
goods and services in the normal course of business; such
as the following (a) advances to of cers and employees
(b) advances to subsidiaries (c) dividends and interest
receivable (d) deposits as a guarantee of performance or
payment (e) deposits to cover potential damages or losses
(f ) claims for; insurance, tax refun ds, lawsuits,
merchandise damaged or lost in transit
Classi ed as CURRENT ASSETS only if
collectible within one year