TRADE & OTHER RECEIVABLES
LECTURE NOTES:
5. The following are normally included in the line item
trade and other receivables’, except
a. Advances to officers and employees
b. Advances to subsidiaries and affiliates
c. Receivables from sale of securities or property
other than inventory.
d. Dividends and interest receivable.
6. Accounts receivable are normally reported at the:
a. Present value of future cash receipts.
b. Current value plus accrued interest.
c. Expected amount to be received.
d. Current value less expected collection costs.
7. New Corp., which has started operations in the current
year, has the following data relating to accounts
receivable for the year ended December 31, 2016:
1. In accordance with PAS 39, “loans and receivables” are
non-derivative
financial
assets
with
fixed
or
determinable payments that are not quoted in an
active market other than:
a. Those for which the holder may not recover
substantially all of its initial investment, other than
because of credit deterioration, which shall be
classified as available for sale.
b. Those that the entity intends to sell immediately or
in the near term, which shall be classified as held
for trading, and those that the entity upon initial
recognition designates as at fair value through
profit or loss.
c. Those that the entity upon initial recognition
designates as available for sale.
d. All of the above
2. In accordance with PFRS 9, loans and receivables can
be measured at amortized cost if
a. The asset is held within a business model whose
objective is to hold assets in order to collect
contractual cash flows.
b. The contractual terms of the financial asset give
rise on specified dates to cash flows that are solely
payments of principal and interest on the principal
amount outstanding.
c. Both a and b.
d. Either a or b.
3. Which statement is incorrect regarding loans and
receivables?
a. An entity shall recognize loans and receivables on
its statement of financial position when, and only
when, the entity becomes a party to the
contractual provisions of the instrument.
b. Receivables are initially recognized at its fair value
plus transaction costs that are directly attributable
to the acquisition of the financial assets.
c. Loans and receivables are subsequently measured
at amortized cost using the effective interest
method.
d. Loans and receivables are required to be classified
as non-current in the statement of financial
position.
4. The category "trade receivables" includes
a. Advances to officers and employees.
b. Income tax refunds receivable.
c. Caims against insurance companies for casualties
sustained.
d. Open
accounts
resulting
from
short-term
extensions of credit to customers.
Cash sales
Credit sales
Collections on credit sales
Sales returns and allowances on
credit sales
Accounts written off
Allowance for doubtful accounts, 12/31
(5% of accounts receivable)
Allowance for sales discounts, 12/31
Allowance for sales returns, 12/31
Allowance for freight, 12/31
P1,000,000
5,000,000
3,000,000
100,000
20,000
?
10,000
15,000
3,000
What is the net realizable value of the accounts
receivable on December 31?
a. P2,708,000
c. P1,758,000
b. P1,880,000
d. P1,752,000
8. On June 9, Seller Corp. sold merchandise with a list
price of P5,000 to Buyer on account. Seller allowed
trade discounts of 30% and 20%. Credit terms were
2/15, n/40 and the sale was made FOB shipping point.
Seller prepaid P200 of delivery costs for Buyer as an
accommodation. On June 25, Seller received from
Buyer a remittance in full payment amounting to
a. P2,744
c. P2,944
b. P2,940
d. P3,000
LECTURE NOTES:
Trade and Cash Discounts
Trade
Cash
Objective
Generate sales
Encourage prompt
payment
Accounting
Not recorded
separately
Recorded using
either Gross or Net
method
Gross and Net method of recording Sales
Gross
Net
Cash
discounts
Deducted from
sales when granted
Deducted from
sales whether
granted or not
Cash
discounts
granted
Deducted from
sales (sales
discounts)
Not accounted for
separately since
already deducted
from sales
Cash
discounts
not
granted
Included in sales
Reported as other
income
(forfeited sales
discounts)
Accounting for Freight
Who should pay?
Who actually paid?
Buyer
FOB shipping point
Freight collect
Seller
FOB destination
Freight prepaid
Deduct
from AR
FOB destination
Freight collect
Add to AR
FOB shipping point
Freight prepaid
9. Trade discounts are
a. Not recorded in the accounts; rather they are a
means of computing a price.
b. Used to avoid frequent changes in catalogues.
c. Used to quote different prices for different
quantities purchased.
d. All of the above.
10. If a company employs the gross method of recording
accounts receivable from customers, then sales
discounts taken should be reported as
a. A deduction from sales in the income statement.
b. An item of "other income and expense" in the
income statement.
c. A
deduction
from
accounts
receivable
in
determining the net realizable value of accounts
receivable.
d. Sales discounts forfeited in the cost of goods sold
section of the income statement.
11. Of the approaches to record cash discounts related to
accounts receivable, which is more theoretically
correct?
a. Net approach.
b. Gross approach.
c. Allowance approach.
d. All three approaches are theoretically correct.
12. The Pacifier Company uses the net price method of
accounting for cash discounts.
In one of its
transactions
on
December
15,
Pacifier
sold
merchandise with a list price of P500,000 to a client
who was given a trade discount of 20% and 15%.
Credit terms were 2/10, n/30.
The goods were
shipped FOB destination, freight collect. On December
20, the client returned damaged goods originally billed
at P60,000. Total freight charges paid by the buyer
amounted to P7,500.
What is the net realizable value of this receivable on
December 31?
a. P272,500
c. P280,000
b. P274,400
d. P333,200
(P23-Kimwell-RPCPA 10/88)
LECTURE NOTES:
Traditional Methods of Accounting for Bad Debts
Allowance method
Profit or loss approach
•
% of sales
FOCUS: Doubtful accounts expense
SFP approach
•
% of accounts receivable
•
Aging
FOCUS: Allowance for doubtful accounts
13. Why is the allowance method preferred over the direct
write-off method of accounting for bad debts?
a. Allowance method is used for tax purposes.
b. Estimates are used.
c. Determining worthless accounts under direct writeoff method is difficult to do.
d. Improved matching of bad debt expense with
revenue.
14. When
the
allowance
method
of
recognizing
uncollectible accounts is used, the entry to record the
write-off of a specific account
a. Decreases both accounts receivable and the
allowance for uncollectible accounts.
b. Decreases accounts receivable and increases the
allowance for uncollectible accounts.
c. Increases the allowance for uncollectible accounts
and decreases net income.
d. Decreases both accounts receivable and net
income.
15. A company uses the allowance method to recognize
uncollectible accounts expense. What is the effect at
the time of the collection of an account previously
written off on each of the following accounts?
Allowance for
uncollectible accounts
a.
No effect
b.
Increase
c.
Increase
d.
No effect
Uncollectible
accounts expense
Decrease
Decrease
No effect
No effect
16. On January 1, 2016, the balance of accounts
receivable of Burgos Company was P5,000,000 and the
allowance for doubtful accounts on same date was
P800,000. The following data were gathered:
2013
2014
2015
2016
Credit sales
P10,000,000
14,000,000
16,000,000
25,000,000
Writeoffs
P250,000
400,000
650,000
1,100,000
Recoveries
P20,000
30,000
50,000
145,000
Doubtful accounts are provided for as percentage of
credit sales. The accountant calculates the percentage
annually by using the experience of the three years
prior to the current year.
How much should be
reported as 2016 doubtful accounts expense?
a. P750,000
c. P330,000
b. P812,500
d. P875,000
17. John Corp. has the following data relating to accounts
receivable for the year ended December 31, 2016:
Accounts receivable, January 1, 2016
Allowance for doubtful accounts,
January 1, 2016
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
P480,000
19,200
2,400,000
2,560,000
17,600
An analysis of cash received from customers during the
year revealed that P1,411,200 was received from
customers availing the 10-day discount period,
P792,000 from customers availing the 15-day discount
period, P4,800 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, 2016 is 125% of the rate
used on December 31, 2015.
The doubtful accounts expense for the year ended
December 31, 2016 is
a. P6,880
c. P8,720
b. P7,120
d. P8,960
18. On the December 31, 2016 statement of financial
position of Mann Company, the receivables consisted
of the following:
Trade accounts receivable
Allowance for uncollectible accounts
Claim against shipper for goods lost in
transit last November 2016
Selling price of unsold goods sent by
Mann on consignment at 30% of
cost (not included in Mann's ending
inventory)
Security deposit on the lease of a
warehouse
Total
P 93,000
( 2,000)
3,000
26,000
30,000
P150,000
How much should be reported as trade and other
receivables in Mann's December 31, 2016 statement of
financial position?
a. P94,000
c. P120,000
b. P68,000
d. P150,000
P20 Kimwell/aicpa 11.90
19. When examining the accounts of Medved Company,
you ascertain that balances relating to both receivables
and payables are included in a single controlling
account called receivables control that has a debit
balance of P4,850,000. An analysis of the composition
of this account revealed the following:
Debit
Account receivable –
customers
Accounts receivable –
officers
Debit balances –
creditors
Postdated checks from
customers
P7,800,000
500,000
300,000
400,000
Credit
Subscriptions receivable
Accounts payable for
merchandise
Credit balances in
customers’ accounts
Cash received in advance
from customers for
goods not yet shipped
Expected bad debts
Debit
800,000
Credit
P4,500,000
200,000
100,000
150,000
After further analysis of the aged accounts receivable,
you determined that the allowance for doubtful
accounts should be P200,000. What is the correct
total of current net receivables?
a. P8,950,000
c. P8,600,000
b. P8,800,000
d. P8,850,000
CGAC
20. Tyson, Inc. reported the following balances (after
adjustment) at the end of 2016 and 2015.
Total accounts receivable
Net accounts receivable
12/31/16
P105,000
102,000
12/31/15
P96,000
94,500
During 2016, Tyson wrote off customer accounts
totaling P3,200 and collected P800 on accounts written
off in previous years.
Tyson's doubtful accounts
expense for the year ending December 31, 2016 is
a. P1,500
c. P3,000
b. P2,400
d. P3,900
21. Cabugao Company began operations on January 1,
2015. On December 31, 2015, Cabugao provided for
uncollectible accounts based on 5% of annual credit
sales.
On January 1, 2016, Cabugao changed its
method of determining its allowance for uncollectible
accounts to the percentage of accounts receivable.
The rate of uncollectible accounts was determined to
be 15% of the ending accounts receivable balance. In
addition, Cabugao wrote off all accounts receivable
that were over 1 year old. The following additional
information relates to the years ended December 31,
2015 and 2016.
2016
2015
Credit sales
P8,000,000
P6,000,000
Collections (including
collections on
recovery)
6,950,000
4,500,000
Accounts written off
70,000
None
Recovery in accounts
previously written off
20,000
None
How much is the provision for uncollectible accounts
for the year ended December 31, 2016?
a. P125,000
c. P400,000
b. P122,000
d. P 72,000