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Initial recognition and measurement
Receivables classified as financial assets
"Loans and receivables" is one of the
four specific categories of financial assets. The
initial recognition and measurement of loans and
receivables is fully explained in 'Classification and measurement of financial assets and derivative financial instruments' [IAS39R.9].
Lease receivables
A lessor should recognise assets held under a finance
lease at an amount equal to the net investment in
the lease [IAS17R.36]. The net investment consists
of the present value of minimum lease payments (which
include any guaranteed residual value) and any unguaranteed
residual asset value accruing to the lessor. The
difference between the gross (undiscounted) investment
in the lease and the net investment is unearned
income [IAS17R.4].
Initial direct costs, such as commissions and legal
fees that are incremental and directly attributable
to negotiating and arranging a lease, are included
in the initial measurement of the finance lease
receivable and reduce the amount of income recognised
over the lease term [IAS17R.38].
Subsequent measurement
Receivables classified as financial assets
Loans and receivables are subsequently measured
at amortised cost using the effective interest method
[IAS39R.46]. The subsequent measurement of loans
and receivables is fully explained in 'Classification and measurement of financial assets and derivative financial instruments'
.
Foreign currency and hedging
Receivables and loans are monetary items. Receivables
and loans that are denominated in foreign currency
other than the functional currency should follow
the rules on accounting for foreign currency transaction
and foreign currency translation .
Some entities choose to hedge the foreign currency
risk and interest rate risk of their receivables
and loans. These hedges are subject to the rules
of hedge accounting .
Lease receivables
A lessor recognises finance income over the lease
term. The pattern of recognition should reflect
a constant periodic return on the lessor's net investment
in the finance lease. Lease payments relating to
the accounting period are applied against the gross
investment in the lease to reduce both the principal
and the unearned finance income [IAS17R.39-40].
The unguaranteed residual asset value should be
reviewed regularly. The allocation of income over
the lease term should be revised and any reduction
in respect of amounts already accrued recognised
immediately [IAS17R.41]. Receipts from a lessee
that represent the reimbursement of costs for services
should be recognised when received.
Impairment
A receivable or loan is impaired if, and only if,
there is objective evidence of impairment as a result
of a loss event that occurred after initial recognition
and that loss event has an impact on the estimated
future cash flows. The impairment of loans and receivables
is fully explained in 'Impairment of financial assets'
Derecognition
The criteria for derecognising loans and receivables
are fully explained in 'Derecognition of financial assets'
Presentation
Trade and other receivables should be presented
on the face of the balance sheet as a separate line
item [IAS1R.68(h)]. Further sub classifications
may be presented on the face of the balance sheet
or in the notes to the balance sheet [IAS1R.74].
Usual sub classifications of receivables for corporate
entities are as follows:
| a) |
trade receivables; |
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| b) |
receivables from other members of the group; |
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| c) |
receivables from related parties; |
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| d) |
loans to related parties. |
Disclosure
Receivables and loans
IFRS sets out comprehensive disclosure requirements
for receivables and loans. These include information
about:
| a) |
significant terms
and conditions that may affect the amount, timing
and certainty of future cash flows [IAS32R.60(a)];
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| b) |
the accounting policies and methods adopted,
including the criteria for recognition and
the basis of measurement applied [IAS32R.60(b)]; |
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| c) |
an entity's exposure to interest
rate risk [IAS32R.67]; |
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i) |
contractual repricing or maturity
dates, whichever dates are earlier; and |
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ii) |
effective interest rates,
when applicable. |
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| d) |
an entity's exposure
to credit risk [IAS32R.76]; |
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i) |
the amount that best represents its maximum
credit risk exposure at the balance sheet date,
without taking account of the fair value of
any collateral, in the event other parties fail
to perform their obligations under financial
instruments; and |
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ii) |
significant concentrations of credit risk. |
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| e) |
the fair value of each class
of receivables and loans [IAS30R.24] [IAS32R.86]. |
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| f) |
details of assets that have
been subject to transfers which have not achieved
full derecognition: the nature of the assets;
the nature of risks and rewards to which the
entity remains exposed; the carrying amounts
of the assets and the associated liability (if
the whole asset remains recognised); and the
amount of the assets that the entity continues
to recognise and the associated liability (if
assets are recognised to the extent of the entity's
continuing involvement) [IAS32R.94(a)]. |
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| g) |
the carrying amount of financial
assets pledged as collateral and any significant
terms relating to the assets pledged [IAS32R.94(b)]. |
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| h) |
the nature and amount of impairment
loss recognised in profit or loss [IAS32R.94(i)]. |
Lease receivables
A lessor should also make the following disclosures
for finance leases, in addition to the disclosure
requirements for receivables and loans which are
equally applicable to lease receivables [IAS17R.47(a)-(f)]:
| a) |
a reconciliation
between the total gross investment in the lease
at the balance sheet date, and the present value
of minimum lease payments receivable at the
balance sheet date; the gross investment in
the lease and the present value of minimum lease
payments receivable at the balance sheet date,
for each of the following periods: |
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not later than one year; |
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later than one year and
not later than five years; |
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later than five years. |
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| b) |
unearned finance
income; |
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| c) |
the un-guaranteed residual
values accruing to the benefit of the lessor; |
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| d) |
the accumulated allowance for
uncollectible minimum lease payments receivable; |
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| e) |
contingent rents
recognised as income in the period; and |
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| f) |
a general description of the
lessor's material leasing arrangements. |
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