ACCO 20053 Lecture 7

12-10-2020

Notes Receivable
Previous CV - Principal - NI + EI = Current CV
NI – EI or EI – NI = Premium or Discount (amortization) respectively
Selling price = cash received + PV of note
Selling price – cost of asset = gain or loss
FV > PV = Discount, while PV > FV = Premium

Current portion = Principal to receive next year + its amortization (if premium) or – its
amortization (if discount)
Noncurrent portion = Principal to receive after 12 months + its total amortization (if
premium) or – its total amortization (if discount)
Note: if a note is non-interest bearing, it still has an interest-bearing component. The thing
is, the total principal amount (maturity value) includes the interest. To get the principal
and interest-bearing portion, use the effective interest method.

Note that when a note is non-interest bearing, it is always discounted with 0 nominal
interest. But when the interest is non-bearing, there will be no accrued interest. But when a
note is interest-bearing, there is a possible accruing interest. And when a note is non-
interest bearing, it is always discounted with 0 nominal interest.
When a note is to be received in lump sum, the principal amount is either current or
noncurrent, and no portion is divided as current or noncurrent.

Case 1
On January 01 2020, equipment costing P2,000,000 with an accumulated depreciation of P300,000
was sold for P500,000 cash and a three-year, 10% notes receivable in equal installments of
P400,000 every December 31 of each year plus interest based on outstanding balance. Interest
effective at this date is 12%.

Date Principal Interest Total PV factor

12/31/20 400,000 120,000 520,000 0.892857143 464,286
12/31/21 400,000 80,000 480,000 0.797193878 382,653
12/31/22 400,000 40,000 440,000 0.711780248 313,183
PV as of 1/1/2020 1,160,122

12/31/20 1,200,000 0.1 120,000

12/31/21 800,000 0.1 80,000
12/31/22 400,000 0.1 40,000

Selling price
Cash received 500,000
PV of NR 1,160,122 1,660,122
CV of equipment
Cost 2,000,000
Acc. dep. 300,000 1,700,000
Loss on sale 39,878

作成した/終わった: 01-08-2021
Alcera, Vincent Luigil C.
 FV of note 1,200,000
PV of note 1,160,122
Discount 39,878

Date Principal NI (10%) EI (12%) Amortization CV

01/01/20 1,160,122
12/31/20 400,000 120,000 139,215 19,215 779,337
12/31/21 400,000 80,000 93,520 13,520 392,857
12/31/22 400,000 40,000 47,143 7,143 -

Interest income = based on effective interest

01/01/2
0 Cash 500,000

  Notes Receivable 1,200,000

  Acc. Depreciation 300,000

  Loss on Sale 39,878

  Equipment 2,000,000

  Discount on NR 39,878

 
12/31/2
0 Cash 520,000

  Discount 19,215

  Notes R. 400,000

  Interest Income 139,215

 
12/31/2
1 Cash 480,000

  Discount 13,520

  Notes R. 400,000

  Interest Income 93,520

 
12/31/2
2 Cash 440,000

  Discount 7,143

  Notes R. 400,000

  Interest Income 47,143

作成した/終わった: 01-08-2021
Alcera, Vincent Luigil C.
 As of 12/31/20, what is the current and noncurrent portion of receivables?

Principal, 12/31/21 400,000

Amort. 12/31/21 - 13,520
Current portion 386,480 (or 779,337 – 392,857)

CV, 12/31/20 779,337

Current portion - 386,480
Noncurrent 392,857 (or 400,000 – 7,143)

Previous CV - Principal - NI + EI = Current CV

EI - NI = Discount/Premium (amortization)

Case 2
On July 01 2020, equipment costing P2,000,000 with an accumulated depreciation of P500,000 was
sold for P500,000 cash and a three-year, 10% notes receivable in equal installments of
P400,000 every July 01 of each year plus interest based on outstanding balance (starting
2021). Interest effective at this date is 8%.

Date Principal Interest Total PV factor

07/01/21 400,000 120,000 520,000 0.925926 481,481
07/01/22 400,000 80,000 480,000 0.857339 411,523
07/01/23 400,000 40,000 440,000 0.793832 349,286
PV as of 07/01/2020 1,242,290

07/01/21 1,200,000 0.1 120,000

07/01/22 800,000 0.1 80,000
07/01/23 400,000 0.1 40,000

Selling price
Cash received 500,000
PV of NR 1,242,290 1,742,290
CV of eqp.
Cost 2,000,000
Acc. dep. 500,000 1,500,000
Gain on sale 242,290

FV of note 1,200,000
PV of note 1,242,290
Premium 42,290

Date Principal NI (10%) EI (8%) Amortization CV

07/01/20 1,242,290
12/31/20 60,000 49,692 10,308 1,231,982
07/01/21 400,000 60,000 49,692 10,308 821,674
12/31/21 40,000 32,867 7,133 814,540
07/01/22 400,000 40,000 32,867 7,133 407,407
12/31/22 20,000 16,296 3,704 403,704
07/01/23 400,000 20,000 16,296 3,704 -

作成した/終わった: 01-08-2021
Alcera, Vincent Luigil C.
 07/01/2
0 Cash 500,000
Notes R. 1,200,000
Acc. Depreciation 500,000
Premium 42,290
Equipment 2,000,000
Gain 242,290

12/31/2
0 Interest Rec. 60,000
Interest Income 49,692
Premium 10,308

07/01/2
1 Cash 520,000
Interest Income 49,692
Premium 10,308
Notes R. 400,000
Interest Rec. 60,000

12/31/2
1 Interest Rec. 40,000
Interest Income 32,867
Premium 7,133

07/01/2
2 Cash 480,000
Interest Rec. 40,000
Notes R. 400,000
Premium 7,133
Interest Income 32,867

12/31/2 Interest
2 Receivable 20,000
Interest Income 16,296
Premium 3,704

07/01/2
3 Cash 440,000
Interest Rec. 20,000
Notes R. 400,000
Premium 3,704
Interest Income 16,296

What is the current and noncurrent portion as of 12/31/20?

CV, 12/31/20 1,231,982
CV, 12/31/21 - 814,540
Current, 12/31/20 417,441 (or 400,000 + 10,308 + 7,133)

CV, 12/31/20 1,231,982

Current, 12/31/20 - 417,441
Noncurrent, 12/31/20 814,541 (or 800,000 + 7,133 + 3,704 + 3,704)

作成した/終わった: 01-08-2021
Alcera, Vincent Luigil C.
Current portion = Principal to receive next year + its amortization (if premium) or – its
amortization (if discount)
Noncurrent portion = Principal to receive after 12 months + its total amortization (if
premium) or – its total amortization (if discount)
Note: if a note is non-interest bearing, it still has an interest-bearing component. The thing
is, the total principal amount (maturity value) includes the interest. To get the principal
and interest-bearing portion, use the effective interest method.

Case 3
On January 01 2020, equipment costing P2,000,000 with an accumulated depreciation of P500,000
was sold for P500,000 cash and a three-year, noninterest-bearing notes receivable in equal
installments of P400,000 every December 31 of each year. Interest effective at this date is
8%.

PV of notes receivable
(400,000 x 2.577097) 1,030,839

Selling Price 1,530,839

CV of eqp. 1,500,000
Gain on Sale 30,839

Face value 1,200,000

PV 1,030,839
Discount 169,161

Date Principal EI (8%) CV

01/01/20 1,030,839
12/31/20 400,000 82,467 713,306
12/31/21 400,000 57,064 370,370
12/31/22 400,000 29,630 -

01/01/2
0 Cash 500,000
Notes Rec. 1,200,000
Acc. Dep. 500,000
Equipment 2,000,000
Discount 169,161
Gain 30,839

12/31/2
0 Cash 400,000
Discount 82,467
Notes R. 400,000
Interest Income 82,467

12/31/2
1 Cash 400,000
Discount 57,064
Notes R. 400,000
Interest Income 57,064

作成した/終わった: 01-08-2021
Alcera, Vincent Luigil C.
 12/31/2
2 Cash 400,000
Discount 29,630
Notes R. 400,000
Interest Income 29,630

What is the current and noncurrent portion as of 12/31/20?

Principal, 12/31/21 400,000

Discount, 12/31/21 -57,064
Current, 12/31/20 342,936 (or 713,306 - 370,370)

Principal, 12/31/22 400,000

Discount, 12/31/22 -29,630
Noncurrent, 12/31/20 370,370 (or 713,306 - 342,936)

Note that when a note is non-interest bearing, it is always discounted with 0 nominal
interest.
Note: when the interest is non-bearing, there will be no accrued interest. But when a note is
interest-bearing, there is a possible accruing interest.

Case 4
On January 01 2020, equipment costing P2,000,000 with an accumulated depreciation of P500,000
was sold for P500,000 cash and a three-year, noninterest-bearing notes receivable for
P1,200,000. Interest effective at this date is 8%.

PV of notes receivable
(1,200,000 x 1.08^-3) 952,599

Selling Price 1,452,599

CV of eqp. 1,500,000
Loss on Sale - 47,401

FV 1,200,000
PV 952,599
Discount 247,401

Date EI (8%) CV
01/01/20 952,599
12/31/20 76,208 1,028,807 Noncurrent
12/31/21 82,305 1,111,111 Current
12/31/22 88,889 1,200,000

01/01/2
0 Cash 500,000
Notes R. 1,200,000

作成した/終わった: 01-08-2021
Alcera, Vincent Luigil C.
 Acc. Dep. 500,000
Loss on Sale 47,401
Equipment 2,000,000
Discount 247,401

12/31/2
0 Discount on NR 76,208
Interest
Income 76,208

12/31/2
1 Discount on NR 82,305
Interest
Income 82,305

12/31/2
2 Discount on NR 88,889
Interest
Income 88,889

Cash 1,200,000
Notes Receivable 1,200,000

When a note is to be received in lump sum, the principal amount is either current or
noncurrent, and no portion is divided as current or noncurrent.

作成した/終わった: 01-08-2021
Alcera, Vincent Luigil C.