PART 8: RECEIVABLE FINANCING

I. Objectives (Discuss and define)

a. Receivable Financing
i. Pledge of Accounts Receivable
ii. Assignment of Accounts Receivable
1. Notification
2. Nonnotification
iii. Factoring
1. Factor’s holdback
2. Factoring fee
3. Interest
4. Recourse obligation

II. PRACTICE EXERCISES

1. On 31 December 2023, the ABC Corp has the following outstanding
balances in its books:
a. Cash ----------------------- PHP 5,000.00
b. Accounts Receivables --- 2,000,000.00
c. Accounts Payable ------- 1,000,000.00

In order to meet its current liabilities, the company decided the

following:
i. On 01 January 2023, Entered in a loan agreement with BDO
Bank for 300,000.00 discounted at 10%. As part of the
agreement, ABC Corp will pledge PHP 500,000.00 of its
accounts receivables as security for the loan agreement.
ii. On 05 January 2023, Assigned PHP 500,000.00 of its
accounts receivables to BPI Bank under a nonnotification
arrangement. The bank paid PHP 250,000.00 and charged
services fee of PHP 2,000.00. Annual interest on unpaid loan
balance is 6%. Subsequently, the following transactions took
place:
1. On 31 January 2023, ABC Corp collected PHP
400,000.00 and issued sales discounts 2% for good
paying customers totaling 80% of the total collections.
2. On 28 February 2023, ABC Corp received a credit
memo request from Customer B for the return of the
latter’s purchase for PHP 50,000.00.
3. On 31 March 2023, ABC Corp remitted.

iii. On 10 January 2023, Assigned PHP 500,000.00 of its

accounts receivables to Metrobank under a notification
agreement. The bank paid PHP 350,000.00 and charged
services fee of PHP 3,000.00. Annual interest on unpaid loan
 balance is 6%. Subsequently, the following transactions took
place:
1. On 10 February 2023, Metrobank collected PHP
420,000.00 and issued sales discounts 2% for good
paying customers totaling 80% of the total collections.
2. On 28 February 2023, Metrobank received a credit
memo request from Customer C for the return of the
latter’s purchase for PHP 50,000.00.
3. On 31 March 2023, Metrobank informed ABC Corp of
the collection of the remaining balances.

iv. On 15 January 2023, factored PHP 500,000.00 of its

accounts receivables to RCBC Bank with the following terms:
1. Credit Term: 2/20, n/30
2. RCBC Commission: 7%
3. RCBC’s holdback: 10%

Subsequently, the following transactions took place:

1. On 10 February 2023, RCBC collected PHP

370,000.00 and issued sales discounts 2% for good
paying customers totaling 60% of the total collections.
2. On 28 February 2023, RCBC received a credit memo
request from Customer C for the return of the latter’s
purchase for PHP 50,000.00.
3. On 31 March 2023, RCBC informed ABC Corp of the
collection of the remaining balances.

REQUIREMENTS:
1. Prepare the Journal Entries.
2. Account for all the receivable financings entered into by ABC
Corp.

PART 9: RECEIVABLE FINANCING – DISCOUNTING OF NOTES RECEIVABLE.

I. OBJECTIVES
a. Parties in a Promissory note
b. Net Proceeds
c. Maturity Value
d. Carrying Amount
e. Accounting for notes receivable discounting:
i. With Recourse
1. Contingent liability
2. Secured borrowing
ii. Without Recourse
 II. PRACTICE EXERCISE:

a. ABC Corp received a 15% promissory note for PHP 3,000,000.00,

9-month promissory note dated 01 February 2023 from customer
A as security payment for merchandise sold by the former. On 01
April 2023, ABC Corp decided to enter an agreement with BDO to
discount the note at 12%.

Requirements:
1. Determine the Maturity Value.
2. Determine the Net Proceeds.
3. Determine the Carrying Amount.
4. Determine the gain or loss on note discounting.
5. Prepare the journal entries if the note is without
recourse.
6. Prepare the journal entries if the note is with recourse
as contingent liability.
7. Prepare the journal entries if the note is with recourse
as secured borrowing.

PART 10: INVENTORIES

I. OBJECTIVES
a. Inventories
b. Classes of inventories
c. Presentation
d. Factors determining the ownership of the goods:
i. FOB Destination
ii. FOB Shipping Point
iii. Freight Collect
iv. Freight Prepaid
e. Accounting for inventory
i. Periodic system
ii. Perpetual system
f. Inventory shortage or overage
g. Trade discounts and cash discounts
i. Sales Discounts
ii. Purchase Discounts
1. Gross method
2. Net method
PART 11: INVENTORY VALUATION

II. OBJECTIVES:
a. FIFO
 b. Weighted Average
c. LIFO
III. Measurement
a. Lower of cost and net realizable value
b. Methods of accounting for inventory writedown
i. Direct Method
ii. Allowance Method
c. Purchase Commitments
d. Gross Profit Method
i. Based on sales
ii. Based on cost
e. Retail Inventory Method

IV. PRACTICE EXERCISES

a. ABC Corp incurred the following transactions in 2023.

i. Inventory balance on 2023, is PHP 900,000.00 for
300,000.00 units.
ii. The company decided to put up at least 20% markup on all
sales and Net method in recording of purchases.
iii. Freight charges was fixed to PHP 3,000.00
iv. On 01 January 2023, purchased 100,000.00 units with
terms 3/15, n/30 for PHP 400,000.00. Shipping details are
FOB Destination and freight collect. This is evidenced by
Purchase Order # PO1
v. On 02 January 2023, Sale to customer A of 10,000 units for
PHP 150,000.00. Terms are 3/15, n/30 with invoice # 1.
Shipping details are FOB Shipping Point and freight collect.
vi. On 05 January 2023, sale to customer B of 20,000 units for
PHP 200,000.00. Terms are 2/15, n/30 with invoice # 2.
Shipping details are FOB Shipping Point and freight collect.
vii. On 12 January 2023, purchased 200,000 units for PHP
700,000.00. Shipping details are FOB Destination and
freight collect. Terms are 3/15, n/30. This is evidenced by
Purchase Order # PO2.
viii. On 15 January 2023, sale to customer C for PHP 100,000.00
of 20,000 units. Terms are 4/10, n/30 with invoice # 3.
Shipping details are FOB Shipping Point and freight collect.
ix. On 15 January 2023, PO1 was settled by issuing a check
payment.
x. On 16 January 2023, received full payment of invoice # 1.
xi. On 17 January 2023, received partial payment of PHP
100,000.00 for invoice # 2.
xii. On 21 January 2023, sale with customer D for PHP
210,000.00 for 40,000 units. Terms are 3/15, n/30 with
 invoice # 4. Shipping details are FOB Shipping Point and
freight collect.
xiii. On 22 January 2023, sale with customer B of 30,000 units
for PHP 180,000.00. Terms are 3/20, n/30 with invoice # 5.
Shipping details are FOB Shipping Point and freight collect.
xiv. On 23 January 2023, sale with customer A of 40,000.00
units for PHP 220,000.00. Terms are 3/20, n/30 with
invoice # 6. Shipping details are FOB Destination and freight
collect.
xv. On 24 January 2023, sale with customer C of 50,000 units
for PHP 230,000.00. Terms are 3/20, n/30 with invoice # 7.
Shipping details are FOB Destination and freight collect.
xvi. On 25 January 2023, sale with customer C of 30,000 units
for PHP 240,000.00. Terms are 3/20, n/30 with invoice # 8.
Shipping details are FOB Destination and freight collect.
xvii. On 26 January 2023, found out that 10% of the goods
received from supplier in PO 2 is defective. Sent email to
supplier to initiate return.
xviii. On 27 January 2023, purchased 150,000 units for PHP
600,000.00. Shipping details are FOB Shipping Point and
freight prepaid. Terms are 3/15, n/30. This is evidenced by
Purchase Order # PO2.
REQUIREMENTS:
1. Prepare the journal entries.
2. Determine the ending balance of inventory at the end
of January 2023.
3. Compute the value of the inventory under the following
methods:
a. FIFO
b. LIFO
c. Weighted Average
b. ABC Corp has the following item balances at the end of the year:

2022

ITEM CODE COST NRV

ITEM1 PHP 1,000,000.00 PHP 1,200,000.00
ITEM2 800,000.00 700,000.00

2023

ITEM CODE COST NRV

ITEM1 PHP 1,500,000.00 PHP 1,400,000.00
ITEM2 1,100,000.00 1,200,000.00
 REQUIREMENTS:
1. Prepare a schedule of cost of goods sold for the current year.
2. Prepare journal entries to record the inventory value and write-
down based on the following:
a. Direct method
b. Allowance Method

c. ABC Corp wants to figure out their ending inventory for the month of
May. The following are the data provided to you:
i. Inventory, April -------------------- PHP 250,000.00
ii. Purchases -------------------------- 500,000.00
iii. Purchase Returns ---------------- 100,000.00
iv. Freight out ------------------------- 10,000.00
v. Sales -------------------------------- 1,500,000.00
vi. Sales Returns ---------------------- 50,000.00
vii. Sales discounts -------------------- 100,000.00
viii. Freight in --------------------------- 50,000.00

Historically, the gross profit is 40% of Net Sales.

Requirement:
1. Determine the ending inventory.
2. Determine the ending inventory if the gross profit is based on cost.