Question Tag: Trade receivables

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  • 20 Marks

CR – Nov 2023 – L3 – SB – Q4 – Financial Instruments (IFRS 9)

Discuss IFRS 9 derecognition rules, trade receivables factoring, and FVTOCI investment strategy for Pelumi Limited.

a. Derecognition of financial instruments is the removal of a previously recognised financial asset or liability from an entity’s statement of financial position.

Required:
Discuss the rules of IFRS 9 – Financial Instruments relating to the derecognition of a financial asset. (10 Marks)

b. Royal Business Limited (RBL) held a portfolio of trade receivables with a carrying amount of N40 million as of May 31, 2022. At that date, the entity entered into a factoring agreement with Hexlinks Bank Limited (HBL), whereby it transfers the receivables in exchange for N36 million in cash. Royal Business Limited has agreed to reimburse the factor (HBL) for any shortfall between the amount collected and N36 million. Once the receivables have been collected, any amount above N36 million, less interest on this amount, will be repaid to Royal Business Limited. Royal Business Limited has derecognised the receivables and charged N4 million as a loss to profit or loss.

Required:
Explain how the rules of derecognition of the financial assets will affect the portfolio of trade receivables in Royal Business Limited’s financial statements. (3 Marks)

c. During the year 2021, Pelumi Limited invested in 800,000 shares in an NGX quoted company. The shares were purchased at N4.54 per share. The broker collected a commission of 1% on the transaction. Pelumi Limited elected to measure their shares at fair value through other comprehensive income (FVTOCI). The quoted share price as of December 31, 2021, was N4.22 to N4.26. Pelumi Limited decided to adopt a ‘sale and buy back’ strategy for the shares to realise a tax loss and therefore sold the shares at the market price on December 31, 2021, and bought the same quantity back the following day. The market price did not change on January 1, 2022. The broker collected a 1% commission on both transactions.

Required:
Explain the IFRS 9 accounting treatment of the above shares in the financial statement of Pelumi Limited for the year ended December 31, 2021.
Note: Show relevant calculations. (7 Marks)

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  • 1 Marks

FA – May 2013 – L1 – SA – Q24 – Recording Financial Transactions

This question involves calculating payments on account receivables during the year.

During a financial year, a company’s financial records reveal the following:

  • Cash Revenue: N100,000
  • Credit Revenue: N500,000
  • Trade receivables at the beginning of the year: N30,000
  • Trade receivables at the end of the year: N44,000

What were the payments on account receivables during the year?

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  • 1 Marks

FA – May 2013 – L1 – SA – Q22 – Accounting Treatment for Bad and Doubtful Debts

This question involves calculating the net trade receivables after applying provision for doubtful debts and discount.

The trial balance of a business shows a trade receivables balance of N90,000. Provision for doubtful debts is 5% of total receivables, while provision for discount on receivables is 2%. The amount to show in the Financial Statements as net trade receivables would be:

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  • 5 Marks

SCS – Nov 2021 – L3 – Q7b – Sources of Finance

Analyze the net benefit of the proposed factoring arrangement for COM.

The management of COM is seeking advice from the finance team on whether or not to accept the proposed trade receivable factoring arrangement. The management is interested in knowing whether the factoring arrangement will benefit the company in totality.

 

Required:
You are the Financial Controller, and the CFO has assigned you the responsibility to determine the net benefit of the factoring financing arrangement. Prepare a brief presentation on the net benefit of the proposed factoring arrangement to be submitted to the CFO.

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  • 1 Marks

BL – Nov 2019 – L1 – SA – Q8 – Law of Contract

Determining the net amount of trade receivables to be recognised in the statement of financial position

What is the net amount of trade receivables recognised in the statement of financial position?
A. N1,110,000
B. N1,201,000
C. N1,210,300
D. N1,274,000
E. N1,300,000

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  • 1 Marks

BL – Nov 2019 – L1 – SA – Q7 – Law of Contract

Calculating the amount of allowance for trade receivables in the profit or loss statement

What is the amount of allowance recognised in the statement of profit or loss?

A. N26,000
B. N63,700
C. N89,300
D. N89,700
E. N98,700

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  • 20 Marks

FA – May 2023 – L1 – SB – Q1 – Recording Financial Transactions, Bad and Doubtful Debts

Preparation and balancing of Trade Receivables, Bad Debts, and Allowances for Doubtful Debts accounts.

It was discovered on December 31, 2016, Baruwa Limited had a receivables balance of N15,000,000. It was discovered, before the preparation of the final accounts, that a customer owing N3,000,000 would not be able to settle such debts. It is the policy of Baruwa Limited to make allowances for doubtful receivables of 5% of all outstanding receivables at the end of each accounting period.

During the accounting year of 2017, the company made total credit sales of N19,600,000, out of which an amount of N11,000,000 was collected from customers. A court declared a customer who owes the company an amount of N1,700,000 bankrupt in August 2017. The company recorded some cheques amounting to N3,500,000 that were dishonoured.

The company recorded N30,000,000 and N17,000,000 in connection with cash and credit sales, respectively, in the year 2018. The company received N25,000,000 from trade receivables and also showed N13,400,000 as the outstanding balance on the sales ledger account. A cheque was received from the customer whose debt was written off in 2016 in full settlement of his debt.

Required:

Prepare and balance the following accounts:

a. Trade Receivables Account (8 Marks)

b. Bad Debts Account (3 Marks)

c. Allowances for Doubtful Receivables Account (3 Marks)

d. Prepare an extract of the Statement of Financial Position as at December 31, 2018, showing the relevant balances. (6 Marks)

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  • 8 Marks

FA – May 2017 – L1 – SB – Q6c – Accounting Treatment for Bad and Doubtful Debts

Prepare the bad debts and allowance for doubtful receivables ledger accounts for Funke Limited.

Funke Limited’s management, based on the prudence principle, evaluated its trade receivables accounts over a period of three years ending on December 31 each year. The following were the extracts from the records of the outcome of the evaluation:

Year Trade Receivables (₦) Bad Debts (₦) Allowance for Doubtful Receivables (%)
2014 654,000 24,000 2%
2015 745,000 18,000 2%
2016 585,000 22,000 2%

The value stated for trade receivables was net of the bad debts but before the allowance for bad debts. There was no allowance for bad debt before 2014.

Required: Prepare the ledger accounts for Bad Debts and Allowance for Doubtful Receivables.

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  • 6 Marks

FA – May 2017 – L1 – SB – Q3a – Accounting Treatment for Bad and Doubtful Debts

Prepare ledger accounts for receivables, bad and doubtful debts, and allowance for doubtful receivables.

The trial balance of Prudent Limited included the following balances as at October 1, 2015:

Account Amount (₦)
Trade receivables 1,564,000
Allowance for doubtful receivables 78,200

During the year to September 30, 2016, Prudent Limited’s credit sales were ₦8,142,000, cash received from customers was ₦7,820,000, and bad debts written off were ₦46,000. Based on experience, Prudent Limited decided to recognize additional allowance of 5% on its receivables as doubtful.

Required:
Prepare the ledgers for:

  1. Receivables Account
  2. Bad and Doubtful Debt Expense Account
  3. Allowance for Doubtful Receivables Account
    (6 Marks)

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  • 20 Marks

CR – Nov 2023 – L3 – SB – Q4 – Financial Instruments (IFRS 9)

Discuss IFRS 9 derecognition rules, trade receivables factoring, and FVTOCI investment strategy for Pelumi Limited.

a. Derecognition of financial instruments is the removal of a previously recognised financial asset or liability from an entity’s statement of financial position.

Required:
Discuss the rules of IFRS 9 – Financial Instruments relating to the derecognition of a financial asset. (10 Marks)

b. Royal Business Limited (RBL) held a portfolio of trade receivables with a carrying amount of N40 million as of May 31, 2022. At that date, the entity entered into a factoring agreement with Hexlinks Bank Limited (HBL), whereby it transfers the receivables in exchange for N36 million in cash. Royal Business Limited has agreed to reimburse the factor (HBL) for any shortfall between the amount collected and N36 million. Once the receivables have been collected, any amount above N36 million, less interest on this amount, will be repaid to Royal Business Limited. Royal Business Limited has derecognised the receivables and charged N4 million as a loss to profit or loss.

Required:
Explain how the rules of derecognition of the financial assets will affect the portfolio of trade receivables in Royal Business Limited’s financial statements. (3 Marks)

c. During the year 2021, Pelumi Limited invested in 800,000 shares in an NGX quoted company. The shares were purchased at N4.54 per share. The broker collected a commission of 1% on the transaction. Pelumi Limited elected to measure their shares at fair value through other comprehensive income (FVTOCI). The quoted share price as of December 31, 2021, was N4.22 to N4.26. Pelumi Limited decided to adopt a ‘sale and buy back’ strategy for the shares to realise a tax loss and therefore sold the shares at the market price on December 31, 2021, and bought the same quantity back the following day. The market price did not change on January 1, 2022. The broker collected a 1% commission on both transactions.

Required:
Explain the IFRS 9 accounting treatment of the above shares in the financial statement of Pelumi Limited for the year ended December 31, 2021.
Note: Show relevant calculations. (7 Marks)

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  • 1 Marks

FA – May 2013 – L1 – SA – Q24 – Recording Financial Transactions

This question involves calculating payments on account receivables during the year.

During a financial year, a company’s financial records reveal the following:

  • Cash Revenue: N100,000
  • Credit Revenue: N500,000
  • Trade receivables at the beginning of the year: N30,000
  • Trade receivables at the end of the year: N44,000

What were the payments on account receivables during the year?

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  • 1 Marks

FA – May 2013 – L1 – SA – Q22 – Accounting Treatment for Bad and Doubtful Debts

This question involves calculating the net trade receivables after applying provision for doubtful debts and discount.

The trial balance of a business shows a trade receivables balance of N90,000. Provision for doubtful debts is 5% of total receivables, while provision for discount on receivables is 2%. The amount to show in the Financial Statements as net trade receivables would be:

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Has Case Study
  • 5 Marks

SCS – Nov 2021 – L3 – Q7b – Sources of Finance

Analyze the net benefit of the proposed factoring arrangement for COM.

The management of COM is seeking advice from the finance team on whether or not to accept the proposed trade receivable factoring arrangement. The management is interested in knowing whether the factoring arrangement will benefit the company in totality.

 

Required:
You are the Financial Controller, and the CFO has assigned you the responsibility to determine the net benefit of the factoring financing arrangement. Prepare a brief presentation on the net benefit of the proposed factoring arrangement to be submitted to the CFO.

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  • 1 Marks

BL – Nov 2019 – L1 – SA – Q8 – Law of Contract

Determining the net amount of trade receivables to be recognised in the statement of financial position

What is the net amount of trade receivables recognised in the statement of financial position?
A. N1,110,000
B. N1,201,000
C. N1,210,300
D. N1,274,000
E. N1,300,000

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  • 1 Marks

BL – Nov 2019 – L1 – SA – Q7 – Law of Contract

Calculating the amount of allowance for trade receivables in the profit or loss statement

What is the amount of allowance recognised in the statement of profit or loss?

A. N26,000
B. N63,700
C. N89,300
D. N89,700
E. N98,700

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  • 20 Marks

FA – May 2023 – L1 – SB – Q1 – Recording Financial Transactions, Bad and Doubtful Debts

Preparation and balancing of Trade Receivables, Bad Debts, and Allowances for Doubtful Debts accounts.

It was discovered on December 31, 2016, Baruwa Limited had a receivables balance of N15,000,000. It was discovered, before the preparation of the final accounts, that a customer owing N3,000,000 would not be able to settle such debts. It is the policy of Baruwa Limited to make allowances for doubtful receivables of 5% of all outstanding receivables at the end of each accounting period.

During the accounting year of 2017, the company made total credit sales of N19,600,000, out of which an amount of N11,000,000 was collected from customers. A court declared a customer who owes the company an amount of N1,700,000 bankrupt in August 2017. The company recorded some cheques amounting to N3,500,000 that were dishonoured.

The company recorded N30,000,000 and N17,000,000 in connection with cash and credit sales, respectively, in the year 2018. The company received N25,000,000 from trade receivables and also showed N13,400,000 as the outstanding balance on the sales ledger account. A cheque was received from the customer whose debt was written off in 2016 in full settlement of his debt.

Required:

Prepare and balance the following accounts:

a. Trade Receivables Account (8 Marks)

b. Bad Debts Account (3 Marks)

c. Allowances for Doubtful Receivables Account (3 Marks)

d. Prepare an extract of the Statement of Financial Position as at December 31, 2018, showing the relevant balances. (6 Marks)

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  • 8 Marks

FA – May 2017 – L1 – SB – Q6c – Accounting Treatment for Bad and Doubtful Debts

Prepare the bad debts and allowance for doubtful receivables ledger accounts for Funke Limited.

Funke Limited’s management, based on the prudence principle, evaluated its trade receivables accounts over a period of three years ending on December 31 each year. The following were the extracts from the records of the outcome of the evaluation:

Year Trade Receivables (₦) Bad Debts (₦) Allowance for Doubtful Receivables (%)
2014 654,000 24,000 2%
2015 745,000 18,000 2%
2016 585,000 22,000 2%

The value stated for trade receivables was net of the bad debts but before the allowance for bad debts. There was no allowance for bad debt before 2014.

Required: Prepare the ledger accounts for Bad Debts and Allowance for Doubtful Receivables.

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  • 6 Marks

FA – May 2017 – L1 – SB – Q3a – Accounting Treatment for Bad and Doubtful Debts

Prepare ledger accounts for receivables, bad and doubtful debts, and allowance for doubtful receivables.

The trial balance of Prudent Limited included the following balances as at October 1, 2015:

Account Amount (₦)
Trade receivables 1,564,000
Allowance for doubtful receivables 78,200

During the year to September 30, 2016, Prudent Limited’s credit sales were ₦8,142,000, cash received from customers was ₦7,820,000, and bad debts written off were ₦46,000. Based on experience, Prudent Limited decided to recognize additional allowance of 5% on its receivables as doubtful.

Required:
Prepare the ledgers for:

  1. Receivables Account
  2. Bad and Doubtful Debt Expense Account
  3. Allowance for Doubtful Receivables Account
    (6 Marks)

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