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Notes Receivable Notes

The document discusses notes receivable, including how they are initially measured at present value or face value depending on whether they are interest-bearing or not. It also discusses how notes receivable are subsequently measured at amortized cost using the effective interest method for long-term notes or face value for short-term notes.

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Barbie Bleu
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29 views3 pages

Notes Receivable Notes

The document discusses notes receivable, including how they are initially measured at present value or face value depending on whether they are interest-bearing or not. It also discusses how notes receivable are subsequently measured at amortized cost using the effective interest method for long-term notes or face value for short-term notes.

Uploaded by

Barbie Bleu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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CHAPTER 6: NOTES RECEIVEBLE

Notes Receivable
-claims supported by a formal promise to pay a certain sum of money at a
specific future date, usually in the form of promissory notes
-claims arising only from sale of merchandise or service in the ordinary
course of business
-may be payable on demand or at a definite future date
o Negotiable Promissory Note- an unconditional promise in writing that a
maker signs in favour of a designated payee who may legally sell or
transfer the note to others
Dishonored Notes
-a matured promissory note which is not paid
-dishonored notes receivable are removed from notes receivable account
and transferred to accounts receivable

INITIAL MEASUREMENT
 Notes Receivable are measured initially at present value which is the sum of all
future cash flows discounted using the prevailing market rate (effective interest
rate) of interest for similar notes
 Short- term notes receivable are measured at face value

CLASSIFICATION OF NOTES:
Interest- bearing notes
-notes that have a stated interest rate
-measured at face value which is usually the present value upon issuance
Noninterest- bearing notes
-notes that do not have a stated interest rate because they include the
interest as part of the face amount
-measured at present value which is the discounted value of the future
cash flows using the effective interest rate

SUBSEQUENT MEASUREMENT
 Long-term notes receivable shall be measured at amortized cost using effective
interest method (PFRS 9, paragraph 5.2.1)
 Amortized Cost -the amount at which note receivable is measured initially at:
o Initial recognition minus principal repayments
o Plus or minus the cumulative amortization using the effective interest of
any difference between the initial amount and the maturity amount
o Minus reduction for impairment or uncollectibility
 The amortized cost of Noninterest- bearing notes receivable is the present value
plus amortization of the discount or face value minus unamortized unearned
interest income

Type of Receivable Initial Measurement Subsequent Measurement


Short- term Fair value plus transaction
receivables (trade cost either:
Face Amount Recoverable historical cost
receivables and non-
Present Value Amortized cost
trade receivables
collectible within one
year)
Long- term Fair Value plus transaction Recoverable historical cost
receivables bearing cost
reasonable interest >Fair Value is equal to
rate face amount
Long-term Fair Value plus transaction Amortized Cost
noninterest- bearing cost
notes > Fair Value is equal to
present value of cash flows
from the receivable
Long-term Fair Value plus transaction Amortized Cost
receivables bearing cost
unreasonable >Fair Value is equal to
interest rate (below- present value of future
market interest rate) cash flows from the
receivable
>If initial measurement is cash price equivalent of the non- cash asset given up,
the subsequent measurement is amortized cost.

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