Subject: Financial Analysis and Reporting

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 Module 9: Receivable financing Discounting of note receivable

Intended Learning Outcomes (ILO)

By the end of the module, the students are expected to:

1. To know the concept of discounting of note receivable

2. To distinguish discounting of note receivable with resource and without recourse
3. To understand discounting of note receivable accounted for as conditional sale with
recognition of contingent liability
4. To understand discounting of note receivable accounted for us secured borrowing

Lecture Proper and Discussion

Concept of Discounting: A holder of a note can readily convert it to cash by discounting it at a bank, either with or without
recourse. The bank accepts the note and gives the holder cash equal to its maturity value less a discount computed by a discount
rate to the maturity value. The bank gets its money back plus the discount when the note is paid by its maker at maturity. If the
note is not paid at maturity, the bank can collect from the original holder if it was discounted with recourse. If the arrangement is without
recourse, the bank must find another remedy. Discounting without recourse- The holder/endorser is not held liable in case the maker
fails to pay. Illustration: Without recourse On April 1, 20xx ABC Co. received from customer a P100,000, 6-month 8% note and
discounted it after holding for 2 months. The entity discounted the note at 10%.

To entry:

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Cash on hand 100,533

Loss on Discounting (squeeze) 800

Note Receivable 100,000

Interest Income 1,333

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Suggested Teaching Activities (TAs)

• https://youtu.be/C4ilSrShKbk
• https://youtu.be/ksSCndh4SrE

Assessment Tasks / Output (ATOs)

Questions:

1. Explain discounting of note receivable

2. Who are the original parties in a promissory note?

3. Who are the parties involve after discounting of note receivable

4. Explain endorsement of a negotiable instrument

5. Explain maturity value.

6. What is the formula in computing net proceeds from discounting od note receivable

7. What is the formula in computing interest on the note receivable

8. Explain discount in in relation to discounting note receivable

9. What is the formula in computing discount?

10. Explain discounting without recourse

Readings and Other References

1. Intermediate accounting volume 1; Conrado T. Valix, Jose F. Peralta, Christian Aris M. Valix
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2. https://youtu.be/C4ilSrShKbk
3. https://youtu.be/ksSCndh4SrE

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