Subsequent Measurement of Receivables PDF

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Subsequent Measurement of RECEIVABLES: Type of Receivable

Subsequent measurement If the initial measurement is : a. the face amount, the subsequent measurement is recoverable historical cost.

1. Short term receivables ( trade receivable and non trade receivables collectible within one year)

b. present value, the subsequent measurement is amortized cost. c. transaction price, the measurement is subsequently updated using the principles of PFRS15.

2. Long term receivables bearing reasonable interest rate 3. long term non interest bearing receivables

> Recoverable historical cost > Amortized cost

4. Long term receivables bearing unreasonable interest rate (below market > Amortized cost interest rate) If the initial measurement is cash price equivalent of the non cash asset given up, the subsequent measurement is amortized cost. Definition of Terms. 

Recoverable historical cost or net realizable value - represents the amount of cash expected to be recovered from the principal amount of the receivable. It is computed as the face amount of the receivable minus subsequent repayments of principal and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectibility. Example:

Accounts Receivable Less: Allowance for doubtful accounts Net Realizable Value

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Amortized cost - is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets adjusted for any loss allowance (PFRS 9, Appendix A)

The amortized cost of a receivable is determined using the effective interest method. 

Effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period....