GAB–Calculating Account Receivable

A reader posted one question as following:

Based on App-8 Year-End-Data sheet, the Accounts Receivables for 30/6/2013 equals to 342,286. I’ve looked at the financial statement (page103) and noticed that you used the sum of “Receivables, deposits and prepayments-322806 and Current tax assets-19,480).

May I know the reason you used the sum of both components. Why not use the breakdown into “Trade receivables” at financial statement (page123) at 294,670 or even just “Receivables, deposits and prepayments” at 322806?

This is indeed a very good question! Thanks for this.


Compare to other companies’ financial report, the way GAB present Account Receivable is slightly different. Here, I need to provide justification: For GAB, why should we use the following formula to calculate Account Receivables?

[Account Receivables] = [Receivables, Deposits and Prepayments] + [Current tax assets]

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Before we go further, let us refresh our memory about the definition of Account Receivable:

Money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used, but not yet paid for. Receivables usually come in the form of operating lines of credit and are usually due within a relatively short time period, ranging from a few days to a year.

Now, let us use the definition of Account Receivable to match the classification of each component in the footnote 6 (Receivables, Deposits and Prepayments)

Trade Receivables and Impairment Losses

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“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. This is the most commonly shown in any financial report. For some companies, due to their nature of business, “trade receivables” equals to “Account Receivables”. “Trade receivables” is in actual fact subset of “Account Receivables”.

We need to deduct Impairment Losses because GAB will not be able to collect that money for some reasons.

Other Receivables

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Let see how GAB classifies “Other receivables” as following. Remember that we refer to the current “Other Receivables”. In short, GAB expects to receive repayment of staff loan (RM1,850,000) within 12 months. In this case, GAB’s staffs who taken company loan are (internal) customer. Thus, “Other Receivables” is part of “Account Receivables”.

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Prepayments and Deposits

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The above classification of prepayments is complicated. In simple way, GAB allocates prepaid money to some suppliers (but not actually pay them), but GAB can take back the money if the money is not fully utilized.

But why do I explain prepayments and deposits at the same place? Reason is from accounting perspective, the way recording prepayments and deposits is the same. GAB also paid refundable deposits to business partners or suppliers, and depends on business terms, business partners or suppliers need to refund GAB if certain conditions are triggered.

In this context, prepayments and deposits are part of “Account Receivables”.

Amounts due from a subsidiary and related parties

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Let see how GAB classifies “Amounts due from a subsidiary and related parties”. The keyword is “repayable on demand”. So this is part of “Account Receivables”.

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Current Tax Assets

Definition of Current Tax Assets:

“Tax assets for current and prior periods are measured at the amount that is expected to be received from the taxation authorities, using the tax rates that have been enacted or substantively enacted by the reporting date.”

Note that Current Tax Assets is not Deferred Tax Assets.

So, Current Tax Assets is part of “Account Receivables”.


Conclusion

Let see the most complete formula of “Account Receivables”:

ACCOUNT RECEIVABLES = TRADE RECEIVABLES + OTHER RECEIVABLES + CURRENT TAX ASSETS

Trade Receivables include the following:

1. Trade notes and account receivables;

2. Receivables / sale of goods or rendering of services;

3. Receivables / payment withheld as guaranty;

4. Not-matured notes receivables;

5. Receivables / unbilled receivables;

6. Less provision for doubtful clients related to Trade Receivables;

7. Less creditor receivables (down-payments from clients, overpayments, credit notes, returns or allowances, claims).

Other Receivables include the following:

1. Receivables on sale of market securities (less provision for doubtful clients);

2. Other accrued income;

3. Non-contingent subsidies receivables (investment subsidies, operating subsidies, net loss compensating subsidies);

4. Not matured notes;

5. Deferred expenses;

6. Prepaid expenses; and

7. Receivables in respect of overpaid customs duties and excise duties.

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