Trade and other receivables are dis-aggregated into amounts receivable from trade customers (Trade receivables), receivables from related parties, prepayments and other amounts. (IAS 1 77, IAS 1 78(b))
Trade receivables are amounts billed by a business to its customers when it delivers goods or services to them in the ordinary course of business. These billings are typically documented on formal invoices, which are summarized in an accounts receivable aging report. This report is commonly used by the collections staff to collect overdue payments from customers.
For receivables from related parties the gross amount outstanding and any impairment are separately disclosed.
In the general ledger, trade receivables are recorded in a separate accounts receivable (control) account, and are classified as current assets on the balance sheet if you expect to receive payment from customers within one year. Receivables over one year are reported as non-current.
Example from Vodafone Group Plc Annual Report 2018:
IFRS disclosure requirements applied are: sub-classification in IAS 1 77 and IAS 1 78(b), Related party disclosure in IAS 24 18(b) and (c), classes of financial instruments in IFRS 7 6, pledged assets in IFRS 7 14, Credit risk management practice in IFRS 7 35F, credit risk exposure and collateral in IFRS 7 36, fair value disclosure in IFRS 7 25, IFRS 7 29(a) and the ability to sell or re-pledge collateral in IFRS 7 15.
The carrying value of trade and other receivables classified at amortised cost approximates fair value. Explanation: This implies that these amounts will turn to approximately the same amount of cash within 12-months (IFRS), but in practice (dependent on industry) within 30 – 60 days. Receivables expected to turn into cash over 12-months are classified as non-current (see Vodafone disclosure above)
Trade receivables amounting to CU1,500,000 (2017: CU nil) were pledged to the World Bank as collateral to secure a loan of CU1,000,000 (2017: CU nil). Explanation: This provides (potential) creditors and other users of financial statements useful information, part of the receivables are pledged and as a result cannot be pledged by other third parties,
At 31 December 2018, CU250,000 (2017: CUnil) of trade receivables had been sold to a provider of invoice discounting and debt factoring services. The Group is committed to underwrite any of the debts transferred and therefore continues to recognise the debts sold within trade receivables until the debtors repay or default.
Since the trade receivables continue to be recognised, the business model of the Group is not affected. The proceeds from transferring the debts of CU221,000 (2017: CUnil) are included in other financial liabilities until the debts are collected or the Group makes good any losses incurred by the service provider. Explanation: Factored receivables are still at risk for the entity and as a result recorded gross in the financial position. The financing element is also shown gross as a liability, separate from other loans and liabilities.
The Group does not hold any collateral as security. Explanation: The entity has not obtained any additional security to reduce credit risk/uncollectibility for its outstanding receivables.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables and contract assets. To measure expected credit losses on a collective basis, trade receivables and contract assets are grouped based on similar credit risk and aging.
The contract assets have similar risk characteristics to the trade receivables for similar types of contracts. The expected loss rates are based on the Group’s historical credit losses experienced over the three year period prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group’s customers.
The Group has identified the gross domestic product (GDP), unemployment rate and inflation rate as the key macroeconomic factors in the countries where the Group operates. Explanation: It is disclosed that the entity, although using the simplified approach, still uses a sophisticated system of measuring expected credit losses.
Trade and other receivables Trade and other receivables
Trade and other receivables Trade and other receivables Trade and other receivables Trade and other receivables
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