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Notes Receivable

Notes receivable are formal promises to pay definite sums of money, usually in the form of promissory notes. Notes may be payable on demand or on a future date. When notes mature but are not paid, they become dishonored and are transferred to accounts receivable. Short-term notes receivable are measured at face value since discounting has an immaterial effect, while long-term notes are measured at amortized cost using the effective interest method in accordance with accounting standards. The amortized cost considers payments, amortization of differences between initial amounts and maturity amounts, and reductions for impairments. Only long-term interest-bearing and non-interest bearing notes are discussed in conjunction with present value

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20 views

Notes Receivable

Notes receivable are formal promises to pay definite sums of money, usually in the form of promissory notes. Notes may be payable on demand or on a future date. When notes mature but are not paid, they become dishonored and are transferred to accounts receivable. Short-term notes receivable are measured at face value since discounting has an immaterial effect, while long-term notes are measured at amortized cost using the effective interest method in accordance with accounting standards. The amortized cost considers payments, amortization of differences between initial amounts and maturity amounts, and reductions for impairments. Only long-term interest-bearing and non-interest bearing notes are discussed in conjunction with present value

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amargocherrymae780
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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NOTES RECEIVABLE

NATURE

Notes recievable are claims supporter by formal promise to pay usually in a form of notes.

• A Promissory note is a written contract in which one person known as the maker, promises to pay
another person known as the payee a diffinite sum of money

•The note maybe payable on demand or a definite future date.

• Standing alone, the term "notes recievable" represents only claims arising from sale of merchandise,
or service in ordinary course of business. Thus, notes recievable from officers, employees,shareholders
and affiliates shall be designated separately.

DISHONORED NOTES

• When a promissory notes mature and is not paid, it is said to be dishonored. Theoritically, dishonored
notes are transferred to Accounts recievable.

• The amount debited to Account recievable should include the face amount, interest and other
charges

INITIAL MEASUREMENTS

•Conceptually Notes recievable measured at Present Value

• The prevailing market rate of interest is actually the effective interest rate

1. Short term Notes recievable - are measured at face value

Note: Cash flow relating to short term notes recievable are not discounted because the effect of
discounting is immaterial.

2. Long term Notes receivable

• Interest bearing

• Non-interest bearing
SUBSEQUENT MEASUREMENTS

• Subsequent to initial recognition longterm notes receivable shall be measured at a amortized cost
using the effective interest Method. The amortized cost method is in Accordance with PFRS 9, paragraph
5,2,1

• The amortized cost is the amount at which notes receivable is measure initially;

a. Minus principal payment

b. Plus or minus cumulative amortization of any difference between initial carrying amount and the
principal maturity amount

c. Minus reduction for impairment or uncollectibly

• For long term non interest bearing notes receivable, the amortized cost is the present value plus
amortization of the discount or the face amount minus unamortized earned interest income

•Only Long term interest bearing and non interest bearing notes receivable will be discussed in the
conjunction with the present value concept.

PRESENT VALUE - it is the discounted value of future cash flows using effective interest rate

PV Factor

PV of 1- is used when cashflow is a lump sum

PV of OA- is used when cashflow are equal installment and the first installment does not begin
immediately

PV of annuity- is used when cashflow re in qual.installmentand the first installment begins immediately

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