Question
Due to the COVID-19 pandemic the entity has experienced reduced operating margins and liquidity concerns. As part of their process to manage liquidity concerns, they
Due to the COVID-19 pandemic the entity has experienced reduced operating margins and liquidity concerns. As part of their process to manage liquidity concerns, they have considered factoring their accounts receivable (debtors book). Below is an extract from the notes to GOLs financial statements as at 31 July 2020:
Description | 2020 (R)
|
Trade Debtors | 2 000 000 |
Provision for Doubtful Debts | (150 000) |
Prepayments | 200 000 |
Trade and Other Receivables | 2 050 000 |
GOL has approached DBC Bank for assistance with the factoring transaction. Below is a brief summary of the banks terms:
1.) DBC will give 80% of the value of accounts receivable as at 31 July 2020 to GOL. The remaining 20% will be recovered by DBC and paid over to GOL.
2.) The fee is 7.5% of the accounts receivable amounted stated above.
In terms of International Financial Reporting Standards (IFRS) 9: Financial Instruments, discuss how accounts receivable should be measured in GOLs financial statements. In addition, provide the initial journal entry (debit/s and credit/s) if GOL decided to enter into the (14)
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