Loan Receivable and Receivable Financing PDF

FATHER SATURNINO URIOS UNIVERSITY
ACCOUNTANCY PROGRAM
INTERMEDIATE ACCOUNTING I
LOAN RECEIVABLE ( PFRS 9)
Initial Measurement – Fair value plus transaction cost directly attributable (DOC) to the
acquisition of the loan or financial asset. Normally, this is the transaction price.
Subsequent Measurement – at amortized cost using effective interest method.
*Principal xx
**Direct Origination Cost xx
***Origination fees received from the borrower (xx)
Initial Measurement/ Initial Carrying amount of Loan xx
Principal Repayment (xx)
Cumulative (Discount)/Premium (xx)/xx
Reduction for Impairment or collectability (xx)
Amortized Cost/Carrying Amount xx
* Loan Receivable xx
Cash xx
** Unearned Interest Income xx

Cash xx
*** Cash xx
Unearned Interest Income xx
Amortization Table – Effective Interest Method
Date Interest received Interest Income Amortization Carrying Amount

(a) (b) (c) (d)
xx xx xx xx
a. Principal x Nominal rate

Cash xx
Interest Income xx
b. Carrying Amount x Effective rate
c. Interest Received – Interest Income (absolute amount)

Unearned Interest Income xx
Interest Income xx
d. Carrying amount + Amortization or Principal xx

Unearned Interest income, balance (xx)
Effective rate > Nominal rate = Discount or Initial CA < Principal Amount
Effective rate < Nominal rate = Premium or Initial CA > Principal Amount
Present Value of 1 = (1 + 𝑖) ^ -n
Present Value of Ordinary Annuity = 1 – (1 + 𝑖) ^ -n
i
Espina,S.C.P.A.
IMPAIRMENT OF LOAN RECEIVABLE
The amount of impairment loss can be measured as the difference between the carrying amount
and the present value of estimated future cash flows discounted at the original effective rate.
Carrying Amount of Laon at the time of Impairment xx

Present Value of cash flows (xx)
Impairment loss xx
Loan Impairment loss xx

Allowance for loan impairment xx
Interest Income = Carrying Amount x Effective rate

Allowance for Loan Impairment xx
Interest Income xx
Loan Receivable Balance xx

Allowance for loan impairment, balance (xx)
Carrying amount of Loan xx
RECIVABLE FINANCING – is the financial flexibility or capability of an entity to raise money out of
its receivables.
Forms of Receivable Financing

1. Pledge of accounts receivable. All accounts receivables serve as collateral security for the
loan. No entry would be necessary. It is sufficient that disclosure thereof is made in note to
financial statement.
2. Assignment of accounts receivable. Borrower/Assignor transfers rights in some/specific

accounts receivable to a lender called assignee in consideration for a loan.
Non-notification Basis. Customers are not informed that their accounts have been assigned.
The customers continue to make payment to the assignor, who in return remits the
collection to the assignee.
Notification Basis. Customers are notified to make their payments directly to the assignee.
* Accounts Receivable- assigned account is still part of “trade and other receivables” as part of
Accounts Receivable account.
Accounts Receivable – assigned, balance xx

Note Payable – bank, balance (xx)
*Equity in assigned accounts xx
*Only disclosed in the notes to financial statement.
3. Factoring. Sale of accounts receivable on a without recourse, notification basis. There is a

transfer of ownership of the accounts receivable to the factor.
Casual factoring. Casual sale. Direct recognition of gain or loss on factoring.
Factoring as a continuing agreement.

Gross amount of AR factored xx
Commission (xx)
Interest (xx) Loss on factoring
Bank Service Charge (xx)
Espina,S.C.P.A.
*Factor’s holdback (xx)
Cash received from factoring xx
* Predetermined amount withhold by the factor as a protection against customer returns and
allowances and other special adjustments. The factor’s holdback is a receivable account and classified
as current asset.
4. Discounting of Note Receivable.
Maker/Customer Payee/Endorser Bank/Endorsee
Formulas to remember:
Net Proceeds = Maturity Value – Discount
Maturity value = Principal + Interest
Discount = Maturity Value x Discount Rate x Discount Period (unexpired term)/ 360 or 365 days
Gain or loss on discounting = Net Proceeds – Carrying Amount of Note
Carrying amount of Note = Principal + Interest earned/Interest income
Interest earned = Principal x Nominal rate x Expired term / 360 days or 365 days
Types of Endorsement
1. Without Recourse. Endorser avoids future liability even if the maker refuses to pay the
endorsee on the date of maturity. No secondary liability.
2. WITH RECOURSE. Endorser shall pay the endorsee if the maker dishonors the note. Endorser
has a secondary liability.
Transaction Conditional Sale Secured Borrowing
Discounting of Cash xx Cash xx

Note Receivable Loss on discounting xx Interest Expense xx
NR – discounted xx Liability for NR discounted xx
Interest income xx Interest income xx
Note is paid by NR – discounted xx Liability for NR discounted xx
the maker on Note Receivable. xx Note Receivable. xx
maturity
Note is
dishonored by
maker: Accounts Receivable xx Accounts Receivable xx
Payment to Cash xx Cash xx
endorsee
Cancel the NR – discounted xx Liability for NR discounted xx
contingent Note Receivable. xx Note Receivable. xx
liability
There is gain or loss o discounting. The note receivable is not derecognized but instead an
The NR-discounted account is accounting liability is recorded at an amount equal to
deducted from the total notes the face amount of NR-discounted.
receivable with disclosure of the NO gain or loss on discounting. It is charge to interest
contingent of liability. expense account.
Espina,S.C.P.A.

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FATHER SATURNINO URIOS UNIVERSITY

LOAN RECEIVABLE ( PFRS 9)

Subsequent Measurement – at amortized cost using effective interest method.

** Unearned Interest Income xx

Amortization Table – Effective Interest Method

Date Interest received Interest Income Amortization Carrying Amount

a. Principal x Nominal rate

b. Carrying Amount x Effective rate

c. Interest Received – Interest Income (absolute amount)

d. Carrying amount + Amortization or Principal xx

Carrying Amount of Laon at the time of Impairment xx

Loan Impairment loss xx

Interest Income = Carrying Amount x Effective rate

Loan Receivable Balance xx

Forms of Receivable Financing

2. Assignment of accounts receivable. Borrower/Assignor transfers rights in some/specific

Accounts Receivable – assigned, balance xx

3. Factoring. Sale of accounts receivable on a without recourse, notification basis. There is a

Casual factoring. Casual sale. Direct recognition of gain or loss on factoring.

Factoring as a continuing agreement.

Net Proceeds = Maturity Value – Discount

Maturity value = Principal + Interest

Gain or loss on discounting = Net Proceeds – Carrying Amount of Note

Carrying amount of Note = Principal + Interest earned/Interest income

Transaction Conditional Sale Secured Borrowing

Discounting of Cash xx Cash xx

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