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Hello Dear Tutor,
Would you please help me on this matter?According to both IAS 39 and IFRS 9 we should recognized trade receivable as amortised cost. But here there is a confusion for me because I feel in that case we always have impairment!!
For example suppose a company sells something ($1000 on credit) on the 11th month of the year. So the company trade receivable is 1000. But we know that we will receive this (say) in next 8 months. According to amortised cost model we should calculate the present value of future cawshflow, so the present value of 1000 becomes (say) 950. So why we dont recognise trade receivable as 950 and then recognise the 50 as income (just as usual amortised cost model using the table). I mean something like below (the numbers are just an example)
Year 1 :
opening balance: 950
P&L : 10
received : 0
closing balance : 960Year 2 :
opening balance: 960
P&L : 40
received : -1000
closing balance : 0Thank you for your help in advance
Simply I meant as far as I know according to IFRS 9 we should recognise all financial assets and liabilities at FAIR VALUE initially.
So why we dont do it for trade receivable and trade payable?
( for example the present value of future cashflow for a trade receivable of 1000 becomes 900. so why we dont recognise trade receivable as 900 instead of 1000 )Thanks
Hi,
We would only change the value of the receivable recognised if there was a financing element to the transaction, and using your example above it appears that there is a financing element to it. As there is then we would make the adjustments that you suggest.
For standard trade receivables with credit f 30 – 60 days then there is no need for an adjustment as the receivable will be at its fair value on recognition as the financing element is insignificant.
Thanks
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