Review of Intermediate Accounting Topics | Notes Receivable – Part 1
Notes Receivable
[Initial Measurement of Notes Receivable…]
1 year or
Notes Receivable
less
Short-term notes receivable shall be measured at face value. Cash flows relating to short-terms
Notes receivable are claims supported by a formal promise to pay usually in the form of notes. notes receivable are not discounted because the effect of discounting is usually immaterial.
Trade
Present Value
Standing alone, the term “notes receivable” represents only claims arising from sale of goods or ser- Subsequent Measurement of Notes Receivable
vice in the ordinary course of business.
FA FVPL
Notes receivable shall be subsequently measured at amortized cost. FA FVOCI
Notes received from employees, officers, and shareholders shall be designated separately. FA-AC = collect SPPI
Problem Solving
NR – employ-
Initial Measurement of Notes Receivable
ees
Problem 1. Lump sum notes receivable
NR – officers
PFRS 9 provides that a financial asset shall be recognized initially at fair value plus transaction cost.
Nancy Jewel Mcdonie Corporation (NJMC) is a manufacturer and seller of laptops. On January 1, 20x1,
INITIAL MEASUREMENT = FAIR VALUE + TRANSACTION COST NJMC sold a top-of-the-line laptop costing P200,000 for P300,000. The buyer signed a noninterest-
Fair value is the cash price equivalent of the consideration received, or bearing note for P300,000 payable on December 31, 20x3. The cash selling price is P270,000. The ef -
Fair value is the present value of future cash flows using the prevailing interest rate (or fective interest rate is 3.58%. Calculate the following:
effective interest rate). 1. The initial measurement of notes receivable oh January 1, 20x1.
Transaction costs include commissions to agents, brokers, and dealers, levies by regulatory agen - 2. The interest income for the year 20x1.
cies and security exchanges, and transfer taxes and duties. 3. The current portion of notes receivable to be presented in the December 31, 20x1 balance sheet.
4. The non-current portion of notes receivable to be presented in the December 31, 20x1 balance
sheet.
Transac-
Fair Value
tion Costs Answer
200,00
Cash Price Equivalent
0
In most
Cash Price Face Amount 300,000
cases, TC of A/R = FV +
Equivalent NR is 0
Initial Measurement FV + TC 270,000
TC
Unearned interest income 270K × 3.58% × /12
12
CAm × EIR 30,000
Date Unearned interest Interest Income Carrying amount
1-1-20x1 30,000 270,000
Present
12-31-20x1 20,334 9,666 279,666
Value of fu-
Trade FA
ture Cash 12-31-20x2 10,322 10,012 289,678
Flows 12-31-20x3 0 10,322 N/R 300,000
Present Value Calculate the following:
1. Present value of P1 (PV of P1) 1. The initial measurement of notes receivable oh January 1, 20x1. = 200,000
2. Present value of ordinary annuity of P1 (PV of OA of P1) 2. The interest income for the year 20x1. = 9,666
3. Present value of annuity due of P1 (PV of AD of P1) 3. The current portion of notes receivable to be presented in the December 31, 20x1 balance sheet.
= 279,666
Present value of P1 (PV of P1) is used when: 4. The non-current portion of notes receivable to be presented in the December 31, 20x1 balance
Cash flow is a Lump sum, or sheet. = 0
Cash flows are non-uniform or non-equal installments
Present value of ordinary annuity of P1 (PV of OA of P1) is used when:
Cash flows are in equal installments and the first installment does not begin immediately.
Present value of annuity due of P1 (PV of AD of P1) is used when:
Cash flows are in equal installments and the first installment begins immediately.
