A86045 Accoun,ng and Financial Repor,ng (2015/2016) Session 17 Accounts Receivable Paul G. Smith B.A., F.C.A.
A86045Accoun,ngandFinancialRepor,ng(2015/2016)
Session17AccountsReceivable
PaulG.SmithB.A.,F.C.A.
SESSION17OVERVIEW
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CourseObjec,ves
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Attheendofthiscoursestudentswillbeableto:• Readandperformahighlevelinterpreta2onofthefinancialstatementsofcompaniesapplyinginterna9onalaccoun9ngstandards
• Iden2fyandevaluatetheimpactonacompaniesaccountsofalterna9veaccoun9ngmethods
• Carryoutahighlevelassessmentofthetheeconomic-financialposi9onofacompanyrepor9ngunderIAS/IFRS.
CourseOverview1.Financialrepor,ngunderIFRS 15.Inventories
2.Financialanalysisandra,os 16.Review
3.Financialanalysisandra,os-cont’d 17.Accountsreceivable
4.Review 18.Groupaccounts
5.Revenues 19.Taxa,on(directandindirect)
6.Costsandexpenses 20.Non-financialliabili,es
7.Non-currentfinancialassets/liabili,es 21.Review
8.Non-currentassets-Tangibleassets 22.Review
9.Financialleases 23.CashFlowStatement
10.Review 24.Review
11.Non-currentassets-Intangibleassets 25.Review
12.Impairmentofassets 26.Businesscombina,ons
13Review 27.Finaltest
14.Midtermtest A86045Accoun,ngandFinancialRepor,ng 4
Session17OverviewMins
Sessionoverviewandobjec,ves 5
Reviewofpre-workandsession16recap 5
Defini,ons 10
Fairvalue–discoun,ng,foreigncurrencies 15
Allowances(discounts,returns,baddebts) 15
Factoringandsaleofreceivables(with/withoutrecourse) 15
Creditriskmanagementanddisclosures 10
Overviewofsession18,requiredreadingandassignmentfornextsession
5
Summaryandvalida,on 10
90
5A86045Accoun,ngandFinancialRepor,ng
Objec,vesofSession
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Attheendofthissessionsessionstudentswillbeableto:1. Explainhowtradeaccountsreceivablearevalued
inthebalancesheet2. Ar9culatetheprincipaldeduc9onsthataremade
indeterminingtradeaccountsreceivable3. Understandtherulesforde-recogni9onof
accountsreceivable4. Understandthedisclosurerequirementsrela9ng
tocreditrisk
SESSION16RECAPANDPRE-WORKSESSION17
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RecapofSession16
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ReviewSession
OverviewofSession17
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• Accountsreceivable– Foreigncurrencies
• Valua,on/allowances– Financialdiscounts– Returns– Baddebts
• Discoun,ng• Factoring/saleofreceivables(with/withoutrecourse)
• CreditRiskDisclosures
Session17Pre-work
• Reading– MelvilleInterna,onalFinancialRepor,ng–APrac,calGuide:• Chapter21ChangesinForeignexchangerates
– IASBStatements• IFRS7FinancialInstruments:Disclosures• IAS21TheEffectsofChangesinForeignExchangeRates
• Research– Iden,fythedisclosuresinyourchosencompanyinrespectofaccountsreceivableandmanagementofcreditriskandforeigncurrencyrisks.
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DEFINITIONS
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Tradeaccountsreceivable
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Defini,on–Tradeaccountsreceivableareamountsinvoicedtoandduefromcustomersforgoodsandservicesprovided.Theyarecoveredbythedefini,onofafinancialinstrumentandshouldberecordedattheirfairvaluewhichisnormallytheamountatwhichtheyareini,allyrecorded(unlessextendedcredittermshavebeengrantedinwhichcasetheyshouldbediscounted)lessanyimpairmentallowances.
Uncondi9onalreceivablesandpayablesarerecognizedasassetsorliabili9eswhenanen9tybecomespartytothecontractand,asaconsequence,hasalegalrighttoreceiveoralegalobliga9ontopaycash.(IAS39AG35(a),IFRS9B3.1.2(a))Loansandreceivablesaremeasuredatamor9zedcostusingtheeffec9veinterestratemethodandaresubjecttoreviewforimpairment(IAS39.46,56)
FAIRVALUE
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FairValue-discoun,ng
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IfIhave€100todayandtheinterestrateis7%theninoneyears,methiswillbeworth€107i.e..(100+(100x7/100))
IfIhave€100todayandtheinterestrateis7%thenintwoyears,methiswillbeworth€114.49.i.e.100+((100x7)2/100)
ConverselyifIwillreceive€100inoneyears,meandtheinterestrateis7%thenthiswillbeworthonly€93.45todayi.e.(100/(100x7/100)).
IfIwillreceive€100intwoyears,meandtheinterestrateis7%thethiswillbeworthonly€87.34todayi.e.100/((100x7)2/100)
Inprac9ce,becauseofmateriality,thisisgenerallyonlydoneforextendedpaymenttermsbeyond12months.
Futurevalue Presentvalue
Saleofgoodsinforeigncurrency
2.a)OnSeptember30,20X0thecompanysells50,000unitsofproductXtoacustomerintheUSAat$10eachi.e.$500,000.b)Itrecordsthistransac,onin€attheexchangerateatthe,meofthetransac,oni.e.1.2or€416,666.67.c)Atyearend,December31,thebalanceiss,lloutstandingthereforethecompanyrestatestheassetattheyearendratei.e.1.3or€384,615.38.d)Thelossof€32,051.28isdebitedtotheincomestatement.
Accountsreceivable Sales416.666,67 32.051,38 416,666.67
ExchangeDifferences(I/S)32.051,38
$ €
Sept30 500.000,00 1,20 416.666,67Dec31 500.000,00 1,30 384.615,38
32.051,28
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ALLOWANCES
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Allowances
• Cashdiscounts• Returns• Doubgulaccounts
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Cashdiscounts
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Either Or
Salefor€50,000duein30daysbutwith2%discountforpaymentwithin15days
Recordwiththediscount Recordwithoutdiscount
Accountsreceivable Sales Accountsreceivable Sales49.000 49.000 49.000 50.000 50.000 50.000
Cash Cash 49.000 50.000
IfthencustomerpaysaHer15days Ifcustomerpayswithin15days
Accountsreceivable Sales Accountsreceivable Sales49.000 49.000 49.000 50.000 50.000 1.000 50.000
Cash Financialrevenue Cash 50.000 1.000 49.000
Returns
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Normallyreturnsshouldbees,matedatthe,meofsaleifthecompanyhasahistoryofaccep,ngreturns.Dependingonthereasonforthereturns,andthecondi,onofthereturnedproducts,theitemshouldreturnedtoinventoryandvaluedatthelowerofcostandnetrealizablevalue.
Accountsreceivable Sales50.000 10.000 10.000 50.000
Inventory COGS6.000 30.000 30.000 6.000
Assumeacompanymakesacreditsalefor€50,000ofgoodswithacostof30,000.Thecompanythenagreestoacceptthereturnofgoodswhichitsoldfor€10,000
Allowancefordoubgulaccountsreceivable
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DoubgulaccountsNovar,s $m $m
2012 2011
Notoverdue 8.584 8.967Pastduefornotmorethanonemonth 552 498Pastdueformorethanonemonthbutlessthanthreemonths 321 295Pastdueformorethanthreemonthsbutlessthansixmonths 301 249Pastdueformorethansixmonthsbutlessthanoneyear 205 228Pastdueformorethanoneyear 305 305Provisionsfordoubgultradereceivables -217 -219
10.051 10.323
Es,matesoftherequiredallowanceisnormallybasedonanageingoftradeaccountsreceivableandtakingintoaccountanycreditinsurancethatthecompanymighthave.Thecompanymaycalculateaspecificand/orgenericallowance.
Allowanceexample
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Accounts receivable, gross 62,3 75,4 60,3 80,0 -17,7Reserves for mark-down -1,3 -2,2 -1,1 -2,0 0,7Accounts receivable, gross 61,0 73,2 59,2 78,0 -17,0Depreciation on credits -7,4 -7,0 -3,7 -3,6 -3,8Reserves for returns -8,3 -5,8 -6,8 -6,6 -1,7Accounts receivable, net 45,3 60,4 48,7 67,8 -22,5
Q2 FY13€M
Q1 FY13 Q4 FY12 Q3 FY13 vs Q4
Q3 FY13
€/000 % €/000 % €/000 % €/000 %Generic provision 564 12% 544 12% 515 27% 835 44%Specific provision 4 085 88% 3 993 88% 1 416 73% 1 065 56%Subtotal 4 649 100% 4 537 100% 1 931 100% 1 900 100%BDR warranty LRD Guess Italy 2 801 2 442 1 726 1 691 Depreciation on credits 7 450 6 979 3 657 3 591 Coverage on not secured AR (not considering BDR warranty) 18,6% 14,7% 7,2% 6,4%
Q2 FY13 Q1 FY13 Q4 FY12Q3 FY13
Allowanceexamplecont’d
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€/000Total At risk % on
total at risk
Total At risk % on total at
risk
Total At risk % on total at
riskCurrent 42 725 17 096 69% 62 306 24 932 81% 68 422 25 829 85%1-30 6 996 1 906 8% 5 171 2 498 8% 2 957 644 2%31-60 3 235 1 301 5% 554 183 1% 894 418 1%61-90 902 - 0% 1 444 762 2% 680 212 1%91-180 3 632 2 305 9% 1 960 791 3% 2 777 947 3%181-360 1 997 998 4% 1 437 688 2% 2 466 1 178 4%Over 1 year 2 808 1 113 5% 2 578 1 004 3% 1 810 1 005 3%Total 62 295 24 718 100% 75 451 30 858 100% 80 006 30 233 100%
Q3 FY13 Q2 FY13 Q4 FY12
€M % €M % €M % €M %Insured 28,5 46% 35,4 47% 25,4 42% 38,3 48%Letters of credit 0,5 1% 0,7 1% 1,1 2% 5,5 7%Bank guarantees 8,3 13% 8,5 11% 7,1 12% 6,6 8%Total secured 37,4 60% 44,6 59% 33,6 56% 50,4 63%Unsecured 24,9 40% 30,9 41% 26,7 44% 29,6 37%Total 62,3 100% 75,5 100% 60,3 100% 80,0 100%
Q2 FY13 Q1 FY13 Q4 FY12Q3 FY13
Accoun,ngforbaddebts
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Step1 Step2Recordthees,matedprovisionfordoubgulaccounts Write-offbad-debtsagainsttheprovisionwhencertain
AccountsreceivablleAllowancefordoubgul
accounts AccountsreceivablleAllowancefordoubgul
accounts50000 2500 50000 2500 2500 2500
Sales Baddebtexpense 50000 2500
FACTORINGANDSALEOFRECEIVABLES
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Factoringandsaleofreceivables
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Shouldcashreceivedforatransferorsaleofanassetberecognizedasasaleoraliability?Thede-recogni,onrulesofIAS39(IFRS9)arebasedonthepremisethatifatransferofanassetleavesthetransferor’seconomicexposuretothetransferredassetmuchasifthetransferhadnevertakenplace,thefinancialstatementsshouldrepresentthatthetransferors,llholdstheasset.
Derecogni,onflowchart
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Consolidateallsubsidiaries
Determinewhetherthede-recogni,onprinciplesbelowareappliedtoapartorallofanassetor
groupofsimilarassets
Havetherightstothecashflowsfromtheassetexpired?
Hastheen,tytransferreditsrightstoreceivethecashflowsfromtheassets?
Hastheen,tyassumedanobliga,ontopaythecashflowsfromtheassetthatmeetsthecondi,ons
inpara3.2.5?
Hastheen,tytransferredsubstan,allyalltheriskandrewards?
Hastheen,tyretainedsubstan,allyallrisksandrewards?
Hastheen,tyretainedcontroloftheasset?
Con,nuetorecognizetheassettotheextentoftheen,ty’scon,nuinginvolvement.
Derecognizetheasset
Con,nuetorecognizetheasset
Derecognizetheasset
Derecognizetheasset
Con,nuetorecognizetheasset
Yes
Yes
Yes
No
No
Yes
Yes
No
No
Yes
No
No
Factoring
Withrecourse• Thefactoracquiresthe
tradeaccountsreceivablebutthecompanyisliableforanycreditlossesandmustreimbursethefactorforthese.
• Tradereceivablesshouldnotbederecognizedandtheproceedsshouldbeconsideredasaliabilityorloan.
Withoutrecourse• Thefactoracquiresthe
tradeaccountsreceivableandassumesallthecollec,onrisk.
• Tradeaccountsreceivablearederecognizedandtheproceedsareconsideredascash.
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Factoring:pass-throughtest
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Customer Company Factor
Sales/AccountsReceivables
AccountsReceivablessoldtofactor
Factorprovidescashtocompany
Ifthecompanyretainsthecontractualrighttoreceivecashfromthecustomerandassumesalegalobliga,ontopaythisto
thefactor*Normallythecustomerpaysthefactordirectly
*Allthefollowingcondi,onsmustbemet:a).Theen,tyhasnoobliga,ontopayamountstothefactorunlessitcollectsequivalentamountsfromthecustomerb).Theen,tyisprohibitedbythetermsofthetransfercontractfromsellingorpledgingthereceivablesc).Theen,tyhasanobliga,ontoremitanycashflowsitcollectsonbehalfofthefactorwithoutmaterialdelay.Theen,tyisnotallowedtoreinvestsuchcashflowsexceptincashorcashequivalents.
Cap,vefactor
CREDITRISKDISCLOSURES
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CreditRiskDisclosures
QualitaNvedisclosuresa)Theexposuresandhowtheyariseb)Itsobjec,ves,policiesandprocessesformanagingriskandthemethodsusedtomeasuretherisk;andc)Anychangesin(a)or(b)fromthepreviousperiod
QuantaNvedisclosures• Concentra,onofcreditrisk• Maximumexposureto
creditrisk• Analysisoftheageof
financialassetsthatarepastduebutnotimpaired
• Financialassetsindividuallydeterminedtobeimpaired
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OVERVIEW,REQUIREDREADINGANDASSIGNMENTFORNEXTSESSION
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Session18Pre-work• Reading
– MelvilleInterna,onalFinancialRepor,ng:APrac,calGuide:• Chapter18–GroupsofCompanies(1)• Chapter19GroupsofCompanies(2)• Chapter20AssociatesandJointArrangements
– IASBStatements• IFRS10ConsolidatedFinancialStatements
– IASBTechnicalsummaries• IFRS11JointArrangements• IFRS12DisclosureofInterestsinOtherEn,,es• IAS27SeparateFinancialStatements• IAS28InvestmentsinAssociatesandJointVentures• IAS29FinancialRepor,nginHyperinfla,onaryeconomies
• Research:Foryourchosencompanyunderstanditsaccoun,ngpoliciesforconsolida,onandaccoun,ngforjointventuresandassociatedcompanies
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OverviewofSession18–groupAccounts
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Controloverinvestments:• Subsidiaries• Jointventures• Equityinvestees• SPEsConsolida,onmethods:• Full• equitymethod• propor,onalConsolida,onprocess• Accoun,ngperiods• Foreigncurrencies• Accoun,ngpolicies• Intercompanytransac,ons• Intercompanyprofits• Non-controllinginterests
SUMMARYANDVALIDATION
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SummaryofSession17
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• Accountsreceivable– Discoun,ng– Foreigncurrencies
• Valua,on/allowances– Financialdiscounts– Returns– Baddebts
• Factoring/saleofreceivables(with/withoutrecourse)
• CreditRiskDisclosures
Session17Valida,on
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• Whataretheaccoun,ngentriesforproductreturns(B/SandI/S)?
• Howdoyoucalculatetheallowancefordoubgulaccountsreceivable?
• Whatexchangerateisusedtovalueaccountsreceivableatyearend?
• Ifpaymenttermsaregreaterthantwelvemonthswhatshouldthesellerdo?
• Whatarethetwodifferenttypesoffactoringarrangementandwhatisthedifference?