Theory of Accounts Practical Accounting 1 Chapter 30 – Notes Payable

Note payable

Promissory note
 unconditional promise in writing
 made by one person (maker) to another (payee)
 payment on demand or at a determinable future time a sum certain in money to order or bearer

Measurement
 Initial measurement under PFRS 9
 Fair value minus transaction cost directly attributable to the issuance
 If irrevocably designated at fair value through profit or loss, the transaction costs are expensed immediately
Fair value-present value(discounted amount) of future cash payment to settle the note payable
 Subsequent measurement under PFRS 9
 At amortize cost using effective interest method
Amortized cost=initial measurement minus principle repayment, plus or minus the cumulative amortization
using the effective interest method of any difference between initial carrying amount and maturity amount 
At fair value through profit or loss if the note payable is designated irrevocably as measured at fair value
through profit or loss
Note: any changes in the fair value of the note payable shall be recognized in profit or loss

Treatment for the following note

a) Note issued solely for cash
 Cash proceeds is equal to present value of the note
b) Interest bearing note issued for property
 Purchase price is equal to present value of the note
c) Non-interest bearing note issued for property
 Cash price is equal to present value of the note
 Cash price minus the face value of the note is equal to the imputed interest on the note