MEASUREMENT OF

NOTES RECEIVABLE
→ Notes receivable are claims for which
formal instruments of credit are issued
A. INITIAL MEASUREMENT
as evidence of debt such as
promissory note
→ Measured at present value
→ Negotiable promissory note – is an
→ Sum of all future cash flows discounted
unconditional promise to pay a sum
using the prevailing market rate of
certain in money. This promise must be
interest for similar note
in writing and signed by the maker of
→ Prevailing market rate is the effective
the promise. It must be payable on
interest rate
demand or at a fixed determinable
future time
→ The note may be payable on demand For short-term notes receivable
or at a definite future date → Measured at face value
→ In this module, notes receivable → Not discounted because the of
represents only claims arising from discounting is not material
sale of goods or services in the For long-term notes receivable
ordinary course of business
→ Dishonored notes – when a promissory 1. Interest-bearing notes receivable
note matures and is not paid
– Measured at face value which is actually
Theoretically, dishonored notes the present value upon issuance
receivable should be transferred to
accounts receivable 2. Noninterest-bearing note receivable

It became an ordinary claim against – Measured at present value which is the

the maker
The entry is as follows:
Accounts Receivable
Notes receivable
discounted value of future cash flows using
the effective interest rate
– Interest is already included in the face
amount rather than being stated in a
Xx
separate rate
xx
B. SUBSEQUENT MEASUREMENT

→ Measured at amortized cost using

the effective interest method
→ Amortized cost is the amount at which
the notes receivable is measured
initially (Valix, Peralta, & Valix, 2020):

a. Minus principal repayments

b. Plus or minus cumulative amortization of

any difference between the initial carrying
amount and the principal maturity amount

c. Minus reduction for impairment or

uncollectibility

Long-term noninterest-bearing notes

receivable
→ Amortized cost is the present value
plus amortization of the discount