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Don’t know how to deal with the below transaction in Consolidated Statement of Financial Positions as at 31 October 20×8. Could you please be so kind and try to help me?
“Uzielli (the parent) recognized a trade receivable on 1 November 20X6 due from its customer Thompson at
$51,542,000 payable in three annual instalments of $20,000,000 commencing 31 October 20X7 discounted at a market rate of interest adjusted to reflect the risks to Thompson of 8%. During November 20X8 (before Uzielli’s financial statements were authorized for issue), Thompson entered into liquidation and the liquidator notified Uzielli the creditors would receive 80% of amounts owed on original payment dates. An appropriate market rate of interest(adjusted as above) was 9% at the year end.”WHAT ARE THE CALCULATIONS & CORRECT ACCOUNTING TREATMENT IN CONSOLIDATED SOFP?
The receivable is a financial asset that is impaired at the year end. The recoverable value is 80% of remaining payments.
Using the incurred loss approach:
YR 1
Opening 51,542,000
Finance(8%) 4,123,360
Received (20,000,000)
20X7 Closing 35,665,360
YR 2
Opening 35,665,360
Finance(8%) 2,853,229
Received (20,000,000)
2OX8 Closing 18,518,589
Impairment 3,703,774 (balancing fig.)
Recoverable 14,814,815 (80%*20,000,000)/1.08The impairment reduces retained earnings and receivable is carried at recoverable value.
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