International Financial Reporting

Standards (IFRS)
&
International Accounting Standard (IAS)

Cash and Cash Equivalents

(IAS-7 & IAS-39/IFRS-9)
Trade & Other Receivables
(IAS-18/IFRS-15, IAS-32 & IAS39/IFRS-9)
Presented by: Muluneh Dejene & Kassaye Tuji

This material is the property of Department of1 Accounting

and Finance, CoBE, AAU. Permission must be obtained from

Outline
Outline

Overview
Overview of
of Financial
Financial
Instruments
Instruments

Cash
Cash and
and Cash
Cash Equivalents
Equivalents

Trade
Trade and
and other
other Receivables
Receivables

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Overview
Overview of
of Financial
Financial Instruments
Instruments
Types
Types of
of Assets
Assets

Assets

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Physical
Assets
Financial
Assets

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Overview
Overview of
of Financial
Financial Instruments
Instruments
(Continued)
(Continued) Instrument
Definition
of
Financial
Definition of Financial Instrument

Financial
Instruments

Any
Any contract
contract that
that gives
gives rise
rise to
to both
both aa
Financial
Financial Asset
Asset of
of one
one entity
entity and
and aa Financial
Financial
Liability
Liability or
or Equity
Equity Instrument
Instrument of
of another
another
entity.
entity.
Financial

AAU- IFRS Training

Assets

Financial
Liabilities
Equity
Instrument
Derivatives

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Overview
Overview of
of Financial
Financial Instruments
Instruments

Financial
Instruments

(Continued)
(Continued)

Financial Assets
Debt Instrument
Equity
Instrument

Primary
Derivative
s

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Fu
t
O ures
p
Fo tions
r wa r
d

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Financial
Financial Assets
Assets (IAS
(IAS -39
-39 // IFRS
IFRS -9)
-9)
Definition
Definition
Financial
Financial Assets
Assets is
is any
any asset
asset that
that is:
is:

cash
cash
an
anequity
equityinstrument
instrumentofofanother
anotherentity,
entity,
aacontractual
contractualright
righttotoreceive
receivecash
cashor
oranother
anotherfinancial
financialasset,
asset,
aacontractual
contractualright
righttotoexchange
exchangefinancial
financialassets
assetsor
orliabilities
liabilitieswith
with
another
anotherentity
entity on
on potentially
potentially favorable
favorable terms.
terms.

Examples
Examplesof
ofFinancial
FinancialAssets:
Assets:

Cash
Cash

Trade
Trade Receivables
Receivables

Investment
Investment in
in Shares
Shares

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Financial
Financial Liability
Liability (IAS
(IAS -39
-39 // IFRS
IFRS -9)
-9)
Definition
Definition
Financial
Financial Liability
Liability is
is any
any liability
liability that
that is:
is:

aa contractual
contractual obligation
obligation to
to deliver
deliver cash
cash or
or another
another
financial
financial asset!
asset!

aa contractual
contractual obligation
obligation to
to exchange
exchange financial
financial
assets
assets or
or liabilities
liabilities with
with another
another entity
entity on
on
potentially
potentially unfavorable
unfavorable terms.
terms.

Examples
Examplesof
ofFinancial
FinancialLiabilities:
Liabilities:

Trade
Trade Payables
Payables

Debenture
Debenture Loans
Loans Payable
Payable

Redeemable
Redeemable Preference
Preference (Non-Equity)
(Non-Equity) Shares
Shares

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Equity
Equity Instrument
Instrument (IAS-39
(IAS-39 // IFRS-9)
IFRS-9)
Definition
Definition
Equity
Equity Instrument
Instrument is:
is:
AA contract
contract that
that evidences
evidences aa residual
residual
interest
interest in
in the
the assets
assets of
of an
an entity
entity after
after
deducting
deducting all
all of
of its
its liabilities.
liabilities.

Examples
Examples of
of Equity
Equity Instruments:
Instruments:
Common
Common Stock
Stock
Preferred
Preferred Stock
Stock

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CASH &
CASH
EQUIVALENTS
AAU- IFRS Training

CASH
CASH &
& Cash
Cash Equivalents
Equivalents
Objectives:
Objectives:

Presenting
Presenting accounting
accounting for
for cash
cash and
and
cash
cash equivalents
equivalents as
as regards
regards to:
to:
-- Measurement,
Measurement,
-- Classification,
Classification,
-- Presentation,
Presentation, &
&
-- Reporting
Reporting

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Applicable
Applicable Standards
Standards
Accounting for Cash and Cash
Equivalents is mainly governed by:
IAS 7 - Statement of Cash Flows
IAS 39 - Financial Instruments:
Recognition and Measurement, &
IFRS 9 - Financial Instruments:
Classification, Measurement,
Impairment, and Hedging.
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Basic
Basic Concepts
Concepts &
& Terminologies
Terminologies
Cash:
Comprises cash on hand & on
demand deposits!
Held in the form of currencies &
notes!
Currency notes & coins comprising
foreign currency!
Bank overdraft if payable on
demand (for the lender)!
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Basic
Basic Concepts
Concepts &
& Terminologies
Terminologies
(Continued)
(Continued)

Cash
Cash Equivalents:
Equivalents:

short-term,
highly
liquid
Are
Are
short-term,
highly
liquid
investments!
investments!

Are
Are readily
readily convertible
convertible to
to known
known
amounts
amounts of
of cash!
cash!

Are
Are subject
subject to
to an
an insignificant
insignificant risk
risk of
of
changes
changes in
in value!
value!

Are
Are non-physical
non-physical cash
cash instruments
instruments
which
which can
can be
be converted
converted to
to physical
physical
cash
cash within
within aa period
period of
of 90
90 days
days with
with
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Scope
Scope &
& Exclusions
Exclusions of
of Cash
Cash &
& Cash
Cash
Equivalents

Exclusions
Equivalents

Exclusions
Cash
Cash &
& Cash
Cash Equivalents
Equivalents do
do not
not include
include
the
the f:
f:

Cash
Cash Advances
Advances with
with respect
respect to
to entities
entities
neither
fully
nor
proportionally
neither
fully
nor
proportionally
consolidated
consolidated in
in the
the group
group FS!
FS!

Equity
Equity Investments
Investments unless
unless they
they are,
are, in
in
substance
substance cash
cash equivalents
equivalents such
such as
as aa PS
PS
with
with specified
specified short
short redemption
redemption date!
date!

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Review
Review questions
questions
Cash & Cash Equivalents include all of the ff

except;

a. Cash held in the form of currencies & notes.

b. Demand deposit.
c. Equity Investments which do not have the
characteristics of cash equivalents.
d. Bank overdraft
demand.

which

is

payable

e. Cash on hand.
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on

Measurement

Cash
Cash is
is carried
carried at
at its
its face
face value
value
which
which is
is equivalent
equivalent to
to fair
fair value!
value!

Cash
Cash and
and cash
cash equivalents
equivalents in
in foreign
foreign
currencies
currencies are:
are:
Translated
Translated at
at the
the exchange
exchange rate
rate of
of
the
the date
date of
of the
the operation!
operation!
Converted
Converted to
to reporting
reporting currency
currency
on
on the
the reporting
reporting dated
dated at
at closing
closing
rates!
rates!
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Presentation
Distinguish cash available for
operations from restricted cash!

general

Classification:
1. Current Cash or Cash Equivalent Asset;
When it is not restricted from being
exchanged or used to settle a liability for
at least 12 months from the B/S date!
2. Non-Current Asset;
Restricted cash
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Presentation
Presentation (contd)
(contd)
Examples of Restricted Cash:
Cash & cash equivalents held by a Group
Subsidiary that operates in a country where
there are exchange controls or legal
constraints.
Sinking Fund.
Proceeds of a Construction Mortgage
Funds allocated for Special Purposes by
action of the companys board of directors.
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Exercise

Identify
Identify whether
whether each
each of
of the
the ffff cash
cash is
is
restricted
restricted or
or not:
not:

Checking
Checking account
account held
held for
for General
General
Payments,
Payments,

Payroll
Payroll Fund,
Fund,

Sinking
Sinking Fund,
Fund,

Petty
Petty Cash
Cash Fund,
Fund,

Purchase
Purchase Fund,
Fund,

Change
Change Fund.
Fund.
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Presentation
Presentation (Contd)
(Contd)
Offsetting of Cash Accounts:
Offset bank overdrafts against cash
account provided that overdraft is
payable on demand!
Cash debit and credit accounts with the
same financial entity shall not be
reported net (offset), unless as a result of
contractual agreements!
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Presentation
Presentation (Contd)
(Contd)
Offsetting of Cash Accounts: (Continued)
E.g. Assume that ABC Company has two
checking accounts with CBE (Arada and
6-kilo branches). The account with Arada
branch shows a debit balance of ETB
50,000 and that of 6-kilo branch shows a
credit balance of ETB 10,000.
How does ABC Co. report these
balances in the balance sheet?
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Review questions
1)1) How
Howdo
dowe
wemeasure
measurecash?
cash?
2)2) Cash
Cash and
and cash
cash equivalents
equivalents inin foreign
foreign
currencies
currencies are
are initially
initially translated
translated atat the
the
exchange
rate
of
the
closing
date
exchange rate of the closing date
(true/false)
(true/false)
3)3) As
As per
per International
International Financial
Financial Reporting
Reporting
Standards,
Standards, offsetting
offsetting cash
cash accounts
accounts isis
strictly
strictlyforbidden.
forbidden.(true/false)
(true/false)
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Reporting

What
Whatto
toreport?
report?

Movements of cash & cash equivalents

Movements of cash & cash equivalents
during
during the
the period
period && disclosing
disclosing the
the
category
categorythey
theybelong
belongsuch
suchas:
as:
- - Cash
Cashat
atbank
bank
- - Cash
Cashon
onhand
hand
- - Short-term
Short-termdeposits
deposits
Reconciliation of the cash & cash
Reconciliation of the cash & cash
equivalents
equivalentsininthe
thestatement
statementof
ofCash
CashFlow
Flow
to
tothe
thestatement
statementof
ofFinancial
FinancialPosition.
Position.

Amount of cash subject to restrictions

Amount of cash subject to restrictions
AAUIFRS
AAUIFRS
as
at
the
end
of
the
reporting
period.
as
at
the
end
of
the
reporting
period.
Training
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Similarities
Similarities and
and Difference
Difference between
between
IFRS
IFRS &
& GAAP
GAAP in
in relation
relation to
to Cash
Cash &
&

SIMILARITY
SIMILARITY
Cash
Cash Equivalents
Equivalents

According
According to
to both
both standards,
standards, cash
cash
includes
includes cash
cash on
on hand
hand &
& demand
demand
deposits
deposits..

IAS
IAS 77 define
define cash
cash equivalents
equivalents as;
as;
Short-term
Short-term highly
highly liquid
liquid investments
investments that
that
are
are readily
readily convertible
convertible to
to known
known
amounts
amounts of
of cash
cash which
which mature
mature within
within
90
90 days
days &
& are
are subject
subject to
to insignificant
insignificant
risks.
AAUrisks.
AAU- IFRS
IFRS

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Similarities
Similarities and
and Difference
Difference b/n
b/n IFRS
IFRS &
&
GAAP
(Continued)
GAAP
(Continued)

DIFFERENCE
DIFFERENCE

GAAP
GAAP does
does not
not allow
allow offsetting
offsetting
bank
bank overdrafts
overdrafts against
against the
the
cash
cash account,
account, but
but IFRS
IFRS does!
does!
IFRS
IFRS includes
includes bank
bank overdrafts
overdrafts in
in
the
the cash
cash &
& cash
cash equivalents
equivalents
category
category ifif they
they are
are repayable
repayable
on
on demand!
demand!
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TRADE & OTHER

RECEIVABLES

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Applicable Standards

IAS
IAS 18
18 // IFRS
IFRS 15
15 Revenues,
Revenues,

IAS
IAS 32
32 Financial
Financial Instruments
Instruments
Presentation
Presentation &
& Disclosures,
Disclosures,

IAS
IAS 39/IFRS
39/IFRS 99 Financial
Financial
Instruments
Instruments Recognition
Recognition &
&
Measurement
Measurement

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What
What is
is Receivable?
Receivable?

Receivables
Receivables

asset
designations/terms
Are
Are
asset
designations/terms
applicable
applicable to
to all
all debts,
debts, unsettled
unsettled
transactions
transactions or
or other
other monetary
monetary
obligations
owed
to
a
obligations
owed
to
a
company
company by
by its
its debtors
debtors or
or
customers!
customers!

28

Form
Form part
part of
of
Financial
Financial Assets
Assets
under
the
category
under
the
category
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What
What is
is Receivable?
Receivable? (Continued)
(Continued)
Loans
Loans and
and Receivables
Receivables are:
are:

Non-derivate

Non-derivate financial
financial asset
asset with
with

fixed
fixed or
or determinable
determinable payments;
payments;

that

that are
are not
not quoted
quoted in
in an
an active
active

market
market &
&

which

which are
are not
not classified
classified as
as fair
fair

value
value through
through profit
profit or
or loss!
loss!
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Classification of Receivables

Receivables could be classified in to:

Receivabl
es

Receivabl
Receivabl
es
es

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Trade
Nontrade

Originate
dOriginate
by the
d
by the
Entity
Entity
Held for
Held for
Trading
Trading
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Scope and Exclusions

Trade & Other Receivables include the
f:
Bills receivables;
Products delivered, but not yet billed;
Staff advances and prepayments;
Government Receivables (VAT & other
taxes and dues relating to operations)
Receivables from Operating Subsidies &

Associate Undertakings;
Other A/R (including accrued income).
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Scope
Scope and
and Exclusions
Exclusions (Continued)
(Continued)
Deductions
Deductions from
from Trade
Trade &
& Other
Other
Receivables:
Receivables:

32
32

Advances
Advances &
& prepayments
prepayments
received
received from
from customers;
customers;

Rebates
Rebates (refunds);
(refunds);

Discounts;
Discounts;

A/P
A/P on
on packaging,
packaging, containers
containers
&
& materials
materials on
on which
which deposits
deposits
are
charged!
are
charged!
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Recognition

A
A Trade
Trade Receivable
Receivable arises
arises
upon
upon fulfillment
fulfillment of
of the
the
conditions
conditions required
required for
for
Revenue
Revenue Recognition
Recognition of
of a
a
sale
sale of
of goods
goods and
and
33
33

services!
services!

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Measurement

The
The measurement
measurement rules
rules to
to be
be applied
applied
depend
depend on
on the
the classification
classification of
of the
the
receivable
receivable as:
as:
Business

Originated
by
the
entity
or
Originated by the entityBusiness
or
Model
Model

Held
Held for
for trading.
trading.
Held
Held for
for Trading:
Trading: receivables
receivables incurred
incurred
principally
principally for
for the
the purpose
purpose of
of selling
selling
or
or repurchasing
repurchasing it
it in
in the
the near
near term
term
through
factoring,
securitization,
through
factoring,
securitization,
etc.!
etc.!
Originated
by
the
Entity:
all
Originated
by
the
Entity:
all
receivables
other
those that are
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other than
than
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34
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34 receivables

Measurement
Measurement (contd)
(contd)
Measurement Methods (IFRS 9)

1.Amortized Cost
2.Fair Value through Profit or
Loss

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Measurement
Measurement (contd)
(contd)
Measurement Methods:
1. Amortized Cost
As per IAS 39, a FA shall be measured at
amortized cost if both of the f conditions
are met:

The asset is held within a business

model whose objective is to hold assets
in order to collect Contractual Cash
Flows!
36
36

The contractual terms of the FAs give

rise IFRS
on specified
dates
to cash flow that
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Measurement
Measurement (contd)
(contd)

Measurement Methods:
2. Fair value
FAs which do not fulfill both of
the above conditions (or, those
held for trading) are valued at
fair value i.e.

37
37

a Financial asset is measured

at fair value unless it is
measured at 1/24/17
amortized cost!
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Measurement
Measurement (contd)
(contd)

Example 1: Identify whether each of the

following cases require the classification of
receivables as:
Held for Trading, or
Held to Collect Contractual Cash Flows:
a. An entity holds loans and advances to
customers to collect their contractual cash flows
but would sell an investment in particular
circumstances, perhaps to fund unforeseen
cash shortage.
b. ABC Co. has a business model with the
objective of buying and reselling loans and

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Measurement
Measurement (contd)
(contd)
Initial
Initial
Measureme
Measureme
nt
nt
Measuremen
Measuremen
t Timing
t Timing
Subsequen
Subsequen
t
t
Measureme
Measureme
nt
nt

39
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NonNondiscounted
discounted
Value
Value
Discounted
Discounted
Value
Value
Amortized
Amortized
Cost
Cost
Fair
Fair
Value
Value

Measurement
Measurement (contd)
(contd)

1. Initial Measurement:

For both receivables originated by the

entity & held for trading:

When a receivable is recognized initially,

the company shall measure it at its cost,
including required taxes!

40
40

When the effect of the passage of time

is not significant, receivables are
measured on an
undiscounted basis!
When the effect of the passage of time
is significant, receivables are initially
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Measurement
Measurement (contd)
(contd)
2.
2. Subsequent
Subsequent Measurement
Measurement

I)
I) Receivables
Receivables originated
originated by
by
A.
recognized
A.Initially
Initially the
recognized
at cost
cost (un
(un
entity
the
entity at

discounted
discounted base):
base):
=
= Nominal
Nominal value
value -- impairment
impairment or
or ununcollectability
collectability
B.
B. Initially
Initially measured
measured at
at discounted
discounted
value:
value:
amount
+
discount
II)
Receivables
Held
=Carrying
amount
+ for
discount
II)=Carrying
Receivables
Held
for
accumulation
accumulation
Trading

Trading
at
Measured
Measured
at fair
fair value!
value!

impairments
/un
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Measurement
Measurement (contd)
(contd)

Example 2: On 1st February 2015, ABC Bank

provided working capital loan amounting Br
2m
to
its
customers
(borrowers)
in
anticipation that the bank will collect the loan
after one year (31 January 2016). The fiscal
year ends on June 30. Assume none of this
loan was repaid by 30 June 2016. There is no
collateral for the loan, except good credit
history.
a) Identify whether this loan is accounted for
using amortized cost or fair value.
b) What was the value at which the loan should
be recorded on 1st of February 2015?
c) What was the value at which the loan should
42
42 be reported on 30 June 2015 assuming that

Measurement
Measurement (contd)
(contd)

a) Identify whether this loan is accounted for using

amortized cost or fair value.
Amortized cost, because it is originated by
ABC and expected to be received in cash
from the borrower.
b) What was the value at which the loan receivable
should be recorded on 1st of February 2015?
ETB 2m
c) What was the value at which the loan should be
reported on 30 June 2015 assuming that there was
no impairments during 2015.
ETB 2m
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Measurement
Measurement (contd)
(contd)

d) At what value should the loan

receivable recorded as of 30 June 2016?
Loan loss provision = 2,000,000 * 20% =
400,000
Net loan receivable
400,000 = 1,600,000

2,000,000

The entry to record the provision would

be:
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44

Bad debt expense . 400,000

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Measurement
Measurement (contd)
(contd)
Subsequent Measurement

(Continued)

III) Receivables in Foreign Currencies

Are translated at the exchange rate of

the date of the operation.
Are restated at closing date using the
closing date exchange rate, and
The resulting exchange d/c is included
in the I/S, in accordance with efects of
changes in foreign exchange rates!
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Reporting and Disclosure

As
As stated
stated
disclosures
disclosures
receivables:
receivables:

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46

in
in IFRS
IFRS 7,
7, the
the following
following
are
are made
made with
with regard
regard to
to

Movements
Movements in
in the
the balances
balances of
of
Account
Account Receivables!
Receivables!

Allowances
Allowances for
for doubtful
doubtful accounts
accounts &
&
all
all movements
movements during
during the
the year!
year!

Receivables
Receivables which
which are
are pledged
pledged or
or
otherwise
otherwise restricted
restricted at
at the
the end
end of
of the
the
reporting
reporting period!
period!

Age
Age analysis
analysis of
of receivables!
receivables!

that
transferred!
Receivables
Receivables
that are
are
transferred!
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AAU- IFRS Training
1/24/17

GAAP
GAAP Vs.
Vs. IFRS
IFRS (Concerning
(Concerning Receivables)
Receivables)
Similarities & Difference
Methods/
Treatments

US
GAAP

IFRS
(IAS)

The loans Loans and

Loans
receivables
and
and
is one of the
Receivab receivable
FA
s category
les
categories in
does not
IFRS
exist under
US GAAP.

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GAAP
GAAP Vs.
Vs. IFRS
IFRS

(Concerning
(Concerning Receivables)
Receivables)
Similarities and Difference (Continued)

Methods/
Treatments

US
GAAP

Impairm Similar to
ent of
Notes
Receiva
bles

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IFRS, US GAAP
requires
entities to
assess
whether FA
are impaired
& recognize

AAU- IFRS Training

IFRS
(IAS)

Similar to
US GAAP,
IAS
39
specifies
that
entities
should
assess
whether its
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GAAP
GAAP Vs.
Vs. IFRS
IFRS

(Concerning
(Concerning Receivables)
Receivables)
Similarities and Difference (Continued)
Methods/
IFRS & GAAP have similar
Treatments
requirements for recording
Uncollectible A.R

Collection of A/R previously

Uncolle
written off is accounted for
ctible
similarly
under
US
GAAP
Account
and IFRS.
s
The only d/c b/n the two
Receiva
ble
standards
relates
to
terminology; IFRS refers to
the allowance accounts as
a
Provision.
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Training
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1/24/17
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THE END
Thank You!!!
Facilitators: Muluneh Dejene & Kassaye Tuji
1/24/17

AAU- IFRS Training

50

End of the Presentation!

Facilitators: Muluneh Dejene & Kassaye

Cheers!!!

Hard
work is
the key
to
success!
!!

1/24/17

Celebrate
your
Achievement
!!!

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