MEASUREMENT CLASSIFICATION OF NOTES

Type of Receivable Initial Measurement Subsequent Measurement

1. Short-term Receivable
2. Long-term receivables bearing
reasonable interest rate
3. Long-term noninterest bearing
receivable
4. Long-term receivables bearing
unreasonable interest rate
(below market interest rate)
5. When cash price equivalent of the non-cash asset given up in exchange for the receivable is determinable,
fair value of the receivable is equal to the cash price equivalent
Fair value plus transaction costs If the initial measurement is:
a. Face Amount a. Face amount
b. Present Value - then recoverable
- has a significant financing component) historical cost
c. Transaction Price b. Present value,
- for trade receivables that do not have a - then amortized cost
significant financing component. c. Transaction Price,
- It may not be discounted if it is due within 1 - then updated using
year principles of PFRS 15
Fair value plus transaction costs
Fair value equals to face amount Recoverable Historical Cost
Fair value plus transaction costs
Fair value is equal to the present value of Amortized Cost
future cash flows from the receivable
Fair value plus transaction costs
Fair value is equal to the present value of Amortized Cost
future cash flows from the receivable

TIME VALUE OF MONEY SIMPLE ENTRIES JOURNAL ENTRIES

Future Value of an Amount (FV of ₱1) On April 1, 2021 ABC Co. received a P1,500,000, 10%,
3-year note receivable in exchange for land with carrying
(1 + i) n
amount
Future Value of an ordinary annuity of ₱1 PV of of
1 P850,000. Principal
FCFin 3isequal installments,
in lump sum
plus interest are due annually starting April 1 2022.
FV of ordinary annuity FCF installments, 1st
¿¿ Current market rates as of April 1, 2021, December 31,
installment not made
Future Value of annuity due of ₱1 2021, and December 31 2022 are 10%, 12%, and 13%.
immediately
¿¿ PV of ordinary annuity FCF installments, 1st
Present Value of an Amount (PV of ₱1) Journal Entry Debitnot Credit
installment made
1. 04/01/2021 - Record sale immediately
of Land
(1 + i)-n FV of
Notes annuity due
Receivable FCF installments,
1.5M 1st
Present Value of an ordinary annuity of ₱1 Land installment made850K
¿¿ Gain on sale immediately 650K
Present Value of annuity due of ₱1 2. PV of annuity -due
12/31/2021 FCF installments,
Record Accrued 1st
Interest for 2021
¿¿ Interest Receivable installment
112.5 made
(1.5M x 10% x 9/12) immediately
K
Interest Income
PRESENT VALUE FACTORING 112.5K
3. 04/01/2022 – Receipt of 1st installment on NR
Ask consideration for services performed, you received Cash (principal + interest) 650K
a P10,000 non-interest bearing note today, due in 10 Notes Receivable (1.5M÷3)
equal annual payments of P1,000 each. The current 500K
Interest Income 37.5K
market rate as of today is 12%. (1.5M x 10% x 3/12)
Interest Receivable
a. PV of an ordinary annuity of 1 = 5.650223 112.5K
Present Value of Notes (1,000 x 5.650223) = 5,650.22 4. 12/31/2022 – Record Accrued Interest for 2022
b. PV of an annuity due of 1 = 6.32825 Interest Receivable 75,000
Present Value of Notes (1,000 x 6.32825) = 6,328.25 [(1.5M-500K) x 10% x 9/12)]
Journal Entry Debit Credit Accounts Receivable
1. Record of Note Receivable (a & b) 75,000
Notes Receivable 10,00 5. 04/01/2022 – Receipt of 2nd installment on NR
Revenue 0 Cash (principal + interest) 600K
6,328.25 Notes Receivable (1M÷3)
Unearned interest income 3,671.75 500K
(10k – 6,328.25) Interest Income 25K
2. First installment due immediately (1M x 10% x 3/12)
Interest Receivable
Cash 1,000 75K
Note Receivable 1,000 6. 12/31/2023 – Record Accrued Interest for 2022
Carrying Amount immediately after the receipt of the Interest Receivable 37,500
1st installment [(1.5M - 500K - 500K) x 10% x
10,000 – 3,671.75 unearned interest – 1,000 1st 9/12)]
installment = P5,328.25 Accounts Receivable 37,500
7. 04/01/2022 – Receipt of Last Installment of NR
Cash (principal + interest) 550K
Notes Receivable (1.5M÷3) 500K
Interest Income 12.5K
Time value of Money Application (500K x 10% x 3/12)
Interest Receivable
FV of 1 FCF is in lump sum 37.5K
 2. Present Value of Deferred Annuity
• It recognized interest that accrues during the
AMORTIZATION TABLE – LUMP SUM NOTES deferral period
Dat a)Interest b) Unearned c) Present a. Determine PV of ordinary annuity for the Full
e Income Interest Value Term ex. 5.650223 (n=10)
c x effective b. Determine the PV of ordinary annuity for the
prev. bal – a Prev bal. + a
interest rate Deferred Period ex. 3.037349 (n=4)
c. Get the difference between (a) and (b). The
Journal Entry Debit Credit amount obtained represents the PV factor for
1. 01/01/2021 - Initial Record of NR the deferred annuity
Cash 100K PV of OA n=10 5.650223
Notes Receivable 1M PV of OA n =4 3.037349
Accumulated Depreciation 700K PV factor for the 2.612874
Loss on Sale of Equipment 488,220 payment period
Transportation Equipment
d. The factor determined in (c ) is multiplies by the
Unearned Interest Income
2M annual cash flows to get the present value
288,220 Annual Cash flows 10,000
2. 12/31/2021 - Record Accrued Interest for 2021 PV factor for PP 2.612874
Unearned Interest Income 85,414 Present Value of NR 26,129
Interest Income 85,414 3. Non-uniform payments
3. 12/31/2022-3 – Record Accrued Interest x2-x3  Use of PV of 1
Unearned Interest Income 85,414
Interest Income 85,414
4. 01/01/2024 – Record Settlement of Note
Cash 1M
Notes Receivable  During periods with NO collections, add
1M amortization to present value
 During periods WITH collections, deduct
AMORTIZATION TABLE – INSTALLMENT NOTES amortization to present value
a) c) d) Presen  At maturity date, present value is ZERO
Dat b) Interes
Collectio Amort t
e t Income
n . Value
Face dx
amount ÷ effective Prev. bal
a-b
# of interest -c
payments rate

UNAMORTIZED BALANCE OF UNEARNED

INTEREST INCOME (p.254)
Outstanding Face Amount (less 1st installment) xx
Carrying amount of NR – 12/31/21 (xx)
Unearned Interest Income – 12/31/21 xx

Current Portion of the Notes Receivable

Notes Receivable (20x2 collection) 250,000
Unearned Interest (20x2 interest income) (72,055)
NR, Net (presented in current assets) 177,945
Noncurrent Portion of Notes Receivable
Note receivable (20x3-20x4 collections) 500,000
Unearned interest (20x3-20x4 interest inc.) (77,487)
NR, Net (present in noncurrent assets) 422,513
TOTAL NR, NET – DEC.31,20X1 600,458

Alternative Solution to get Unearned Interest

Note Receivable 250,000
Current Portion (Amortization) (177,945)
Unearned Interest (Current) 72,055

Note Receivable 500,000

Non-current Portion (Amortization) (422,513)
Unearned Interest (Current) 77,487

1. Future Value of Deferred Annuity

 The deferral period is ignored because there is
no accumulation of cash flows
 Do not include # of deferred periods in “n”