Notes Receivable

Prepared by: Brian Christian S.
Villaluz, CPA
Accounting for Receivables
CLASSIFICATION ACCORDING TO SOURCE

1. Trade receivables arising from sale of goods/services in the normal course of business.
- Generally from customers.
- ALWAYS classified as CURRENT.
2. Non-trade receivables arising from sources other than from sale of goods/services in the
normal course of business.
- CURRENT ASSET if collectible within 12 months from B/S date.
- NON-CURRENT ASSET collectible beyond 12 months from B/S date.
- EXCEPTION: Non-current S/R, it is presented as a deduction from SHE.
ACCOUNTING FOR NOTES RECEIVABLE

- Usually long-term.
1. Interest-bearing note
a. Note bearing realistic rate.
b. Note bearing unrealistic rate.
2. Non-interest bearing note
Present value of a non-interest bearing note

1. FMV of property, goods, or services
2. FMV of note
3. Compute using an imputed rate
DISCOUNT on N/R Face > PV

PREMIUM on N/R Face < PV
Page 1 of 4
Prepared by: Brian Christian S. Villaluz, CPA
ACCOUNTING FOR NOTES RECEIVABLE
Problem 1: (LT note with realistic rate)

On January 1, 2016, Bink Company sells an equipment costing P800,000 and with accumulated depreciation of
P450,000. The company receives as consideration P100,000 cash and a 15% note for P400,000 due on December 31,
2018. The interest is payable annually every December 31. The prevailing rate of interest for a note of this type is
15%.
1. What is the gain or loss to be recognized on January 1, 2016?
2. How much interest income should be reported for the year 2016?
3. Classify the note as current or non-current on December 31, 2016.
4. Classify the note as current or non-current on December 31, 2017.
Problem 2: (LT non-interest bearing note)

P450,000. The company receives as consideration P100,000 cash and a non-interest bearing note for P400,000 due on
December 31, 2018. The prevailing rate of interest for a note of this type is 15%. (Round off present value factors to
four decimal places)
2. What is the discount on notes receivable on January 1, 2016?
4. Determine the carrying value of the note as of December 31, 2016. Classify the note as current or non-
current on December 31, 2016.
6. Determine the carrying value of the note as of December 31, 2017. Classify the note as current or non-
current on December 31, 2017.
Problem 3: (LT installment note with realistic rate)

P450,000. The company receives as consideration P100,000 cash and a 15% note for P300,000 due in equal amounts
of P100,000 plus interest on outstanding balance every December 31, starting December 31, 2016. The prevailing rate
of interest for a note of this type is 15%.
3. How much is the current portion of the note on December 31, 2016?
4. How much is the non-current portion of the note on December 31, 2016?
Problem 4: (LT installment non-interest bearing note)

P450,000. The company receives as consideration P100,000 cash and a non-interest bearing note for P300,000 due in
equal amounts of P100,000 every December 31, starting December 31, 2016. The prevailing rate of interest for a note
of this type is 15%. (Round off present value factors to four decimal places)
Page 2 of 4
Problem 5: (LT note with unrealistic rate [SIR < EIR])

On January 1, 2016, Bink Company sold a tract of land that originally cost P400,000. The company receives as
consideration P100,000 cash and a 15% note for P400,000 due on December 31, 2018. The interest is payable annually
every December 31. The prevailing rate of interest for a note of this type is 18%. (Round off present value factors to
4. Determine the carrying value and classify the note as current or non-current on December 31, 2016.
Problem 6: (LT note with unrealistic rate [SIR > EIR])

consideration P100,000 cash and a 18% note for P400,000 due on December 31, 2018. The interest is payable annually
every December 31. The prevailing rate of interest for a note of this type is 15%. (Round off present value factors to
2. What is the premium on notes receivable on January 1, 2016?
Problem 7: (LT installment note with unrealistic rate [SIR < EIR])
consideration P100,000 cash and a 15% note for P600,000 due on December 31, 2018. The note is payable in three
annual installments of P200,000 plus interest on the outstanding balance. The prevailing rate of interest for a note of
this type is 18%. (Round off present value factors to four decimal places)
Problem 8: (LT installment note with unrealistic rate [SIR > EIR])
consideration P100,000 cash and a 18% note for P600,000 due on December 31, 2018. The note is payable in three
annual installments of P200,000 plus interest on the outstanding balance. The prevailing rate of interest for a note of
this type is 15%. (Round off present value factors to four decimal places)
2. What is the premium on notes receivable on January 1, 2016?
END
Page 3 of 4
FAR Answer Key
PROBLEM 1 Answers: PROBLEM 5 Answers:

1. P150,000 gain 1. P73,898 gain
2. P60,000 2. P26,102
3. Non-current 3. P67,302
4. Current 4. P381,200 NC
5. P68,616
6. P389,816 C
7. P70,184

1. P13,000 gain 1. P127,390 gain
2. P137,000 2. P27,390
3. P39,450 3. P64,109
4. P302,450 NC 4. P419,499 NC
5. P45,368 5. P62,925
6. P347,818 C 6. P410,424 C
7. P52,182 7. P61,576

1. P50,000 gain 1. P172,485 gain
2. P45,000 2. P27,515
3. P100,000 3. P103,047
4. P100,000 4. P190,604
5. P30,000 5. P194,928
6. P100,000 6. P69,396
7. 0 7. P194,928
8. P15,000 8. 0
9. P35,072

1. P21,680 loss 1. P228,666 gain
2. P71,680 2. P28,666
3. P34,248 3. P94,300
4. P75,615 4. P209,755
5. P86,953 5. P205,211
6. P24,385 6. P62,245
7. P86,953 7. P205,211
8. 0 8. 0
9. P13,047 9. P30,789
Page 4 of 4

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Prepared by: Brian Christian S.

Accounting for Receivables

CLASSIFICATION ACCORDING TO SOURCE

ACCOUNTING FOR NOTES RECEIVABLE

Present value of a non-interest bearing note

DISCOUNT on N/R Face > PV

ACCOUNTING FOR NOTES RECEIVABLE

Problem 1: (LT note with realistic rate)

Problem 2: (LT non-interest bearing note)

Problem 3: (LT installment note with realistic rate)

Problem 4: (LT installment non-interest bearing note)

Problem 5: (LT note with unrealistic rate [SIR < EIR])

Problem 6: (LT note with unrealistic rate [SIR > EIR])

FAR Answer Key

PROBLEM 1 Answers: PROBLEM 5 Answers:

PROBLEM 2 Answers: PROBLEM 6 Answers:

PROBLEM 3 Answers: PROBLEM 7 Answers:

PROBLEM 4 Answers: PROBLEM 8 Answers:

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