session 17 accounts receivable - my liucmy.liuc.it/matsup/2015/a86045/slides session 17.pdf1....

A86045Accoun,ngandFinancialRepor,ng(2015/2016)

Session17AccountsReceivable

PaulG.SmithB.A.,F.C.A.

SESSION17OVERVIEW

A86045Accoun,ngandFinancialRepor,ng 2

CourseObjec,ves


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


Attheendofthissessionsessionstudentswillbeableto:1.  Explainhowtradeaccountsreceivablearevalued

inthebalancesheet2.  Ar9culatetheprincipaldeduc9onsthataremade

indeterminingtradeaccountsreceivable3.  Understandtherulesforde-recogni9onof

accountsreceivable4.  Understandthedisclosurerequirementsrela9ng

tocreditrisk

SESSION16RECAPANDPRE-WORKSESSION17


RecapofSession16


ReviewSession

OverviewofSession17


•  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.


DEFINITIONS


Tradeaccountsreceivable


Defini,on–Tradeaccountsreceivableareamountsinvoicedtoandduefromcustomersforgoodsandservicesprovided.Theyarecoveredbythedefini,onofafinancialinstrumentandshouldberecordedattheirfairvaluewhichisnormallytheamountatwhichtheyareini,allyrecorded(unlessextendedcredittermshavebeengrantedinwhichcasetheyshouldbediscounted)lessanyimpairmentallowances.

Uncondi9onalreceivablesandpayablesarerecognizedasassetsorliabili9eswhenanen9tybecomespartytothecontractand,asaconsequence,hasalegalrighttoreceiveoralegalobliga9ontopaycash.(IAS39AG35(a),IFRS9B3.1.2(a))Loansandreceivablesaremeasuredatamor9zedcostusingtheeffec9veinterestratemethodandaresubjecttoreviewforimpairment(IAS39.46,56)

FAIRVALUE


FairValue-discoun,ng


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


ALLOWANCES


Allowances

•  Cashdiscounts•  Returns•  Doubgulaccounts


Cashdiscounts


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


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


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


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


€/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


Step1 Step2Recordthees,matedprovisionfordoubgulaccounts Write-offbad-debtsagainsttheprovisionwhencertain

AccountsreceivablleAllowancefordoubgul

accounts AccountsreceivablleAllowancefordoubgul

accounts50000 2500 50000 2500 2500 2500

Sales Baddebtexpense 50000 2500

FACTORINGANDSALEOFRECEIVABLES


Factoringandsaleofreceivables


Shouldcashreceivedforatransferorsaleofanassetberecognizedasasaleoraliability?Thede-recogni,onrulesofIAS39(IFRS9)arebasedonthepremisethatifatransferofanassetleavesthetransferor’seconomicexposuretothetransferredassetmuchasifthetransferhadnevertakenplace,thefinancialstatementsshouldrepresentthatthetransferors,llholdstheasset.

Derecogni,onflowchart


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.


Factoring:pass-throughtest


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


CreditRiskDisclosures

QualitaNvedisclosuresa)Theexposuresandhowtheyariseb)Itsobjec,ves,policiesandprocessesformanagingriskandthemethodsusedtomeasuretherisk;andc)Anychangesin(a)or(b)fromthepreviousperiod

QuantaNvedisclosures•  Concentra,onofcreditrisk•  Maximumexposureto

creditrisk•  Analysisoftheageof

financialassetsthatarepastduebutnotimpaired

•  Financialassetsindividuallydeterminedtobeimpaired


OVERVIEW,REQUIREDREADINGANDASSIGNMENTFORNEXTSESSION


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


OverviewofSession18–groupAccounts


Controloverinvestments:•  Subsidiaries•  Jointventures•  Equityinvestees•  SPEsConsolida,onmethods:•  Full•  equitymethod•  propor,onalConsolida,onprocess•  Accoun,ngperiods•  Foreigncurrencies•  Accoun,ngpolicies•  Intercompanytransac,ons•  Intercompanyprofits•  Non-controllinginterests

SUMMARYANDVALIDATION


SummaryofSession17


•  Accountsreceivable– Discoun,ng–  Foreigncurrencies

•  Valua,on/allowances–  Financialdiscounts–  Returns–  Baddebts

•  Factoring/saleofreceivables(with/withoutrecourse)

•  CreditRiskDisclosures

Session17Valida,on


•  Whataretheaccoun,ngentriesforproductreturns(B/SandI/S)?

•  Howdoyoucalculatetheallowancefordoubgulaccountsreceivable?

•  Whatexchangerateisusedtovalueaccountsreceivableatyearend?

•  Ifpaymenttermsaregreaterthantwelvemonthswhatshouldthesellerdo?

•  Whatarethetwodifferenttypesoffactoringarrangementandwhatisthedifference?

session 17 accounts receivable - my liucmy.liuc.it/matsup/2015/a86045/slides session 17.pdf1....

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