Overview:

“NOTES RECEIVABLES”

Notes Receivables - are claims supported by
formal promises to pay usually in the forms of
notes.
Promissory note - is an unconditional promise
in writing made by one person to another,
signed by the maker, engaging to pay on
demand or at fixed determinable future time a
sum certain in money to order or to bearer.
Dishonored Notes- When a promissory note
matures and is note matures and is not paid, it
is said to be dishonored. Theoretically,
dishonored notes are transferred to accounts
receivable to include, if any, interest and other
charges.
INITITAL MEASUREMENT OF NOTES
RECEIVABLE:
Measurement is the process of determining the
monetary amounts at which the elements of
the financial statements are to be recognized
and carried in the statement of the financial
position and income statement.
Origination fees include compensation for
activities such as:
a. Evaluating the borrower’s financial
condition.
b. Evaluating guaranteed, collateral and
other security.
c. Negotiating the terms of the loan.
d. Preparing and processing the
documents related to the loan.
e. Closing and approving the loan
transaction.
Origination fees received from the borrower are
recognized as unearned interest income. If the
origination fees are not chargeable against the
borrower, the fees are known as “direct
origination costs.
TAKE NOTE: Accordingly, the origination fees
received and the direct origination costs are
included in the measurement of the loan
receivable.
INITIAL MEASUREMENT OF LOAN RECEIVABLE:

Short-term notes receivable is measured at face
value.
Long-term notes receivable:
a. Interest bearing long-term notes are
measured at face value.
b. Noninterest- bearing long term notes
are measured at present value.
Present value is the discounted value of the
future cash flows using the effective interest
rate.
SUBSEQUENT MEASUREMENT
Subsequent to initial recognition, long term
notes shall be amortized cost using the
effective interest method.
“LOANS RECEIVABLES”
Loans Receivable- is a financial asset arising
from a loan granted by a bank or other financial
institutions to a borrower or client.
At initial recognition, an entity shall measure a
loan receivable at fair value plus transaction
costs that are directly attributable to the
acquisition of the financial asset.
FAIR VALUE OF LOAN RECEIVABLE:
The fair value of the loan receivable at initial
recognition is normally the transaction price,
meaning, the amount of the loan granted.
TRANSACTION COSTS OF LOAN RECEIVABLE:
Transaction costs that are directly attributable
to the loan receivable include direct origination
costs. Direct origination costs should be
included in the initial measurement of the loan
receivable.
SUBSEQUENT MEASUREMENT OF LOAN
RECEIVABLE:
A loan receivable is measured at amortized cost
using the effective interest method.

The term of the loan may be short-term but, in

most cases, the repayment period covers
several years.

Origination Fees:

The fees charged by the bank against the

borrower for the creation of the loan are known
as origination fees.
Problems:

Long term- Non-Interest Bearing:

F3 logistics company manufactures and sells

computers. On January 1, 2023, the entity sold a
computer costing ₱10,000 for ₱20,000. The buyer
signed a non-interest bearing note for ₱20,000
payable in three equal installments every December
31. The cash sales price of the computer is ₱15,000.

Long term- Interest Bearing:

CBA company sold to CEAT company a tract of land

costing ₱1,000,000 for ₱2,000,000 on January 1,
2023. CBA company paid ₱500,000 down and signed
a one-year promissory note for the remainder of the
purchase price plus 12% interest compounded
annually. The note matures on January 1, 2020.

Loans receivable:

Part 1.

JPIA bank granted a loan to a borrower on January 1,

2023. The Interest on the loan is 5% payable
annually starting December 31, 2023. The loan
matures in two years on December 31, 2024. Data
related to loan are:

Principal amount ₱1,000,000

Orig. fees charged against the borrower ₱100,000

Direct orig. cost incurred ₱50,000

After considering the origination fees charged

against the borrower and the direct origination
costs incurred, the effective rate on the loan is
7%.

Required: Prepare all indicated entries for 2023

and 2024.

Part 2.
JPIA bank granted a loan to a borrower on January 1,
2023. The Interest on the loan is 5% payable
annually starting December 31, 2023. The loan
matures in two years on December 31, 2024. Data
related to loan are:

Principal amount ₱1,000,000

Orig. fees charged against the borrower ₱50,000

Direct orig. cost incurred ₱100,000

After considering the origination fees charged

against the borrower and the direct origination
costs incurred, the effective rate on the loan is
3%.

Required: Prepare all indicated entries for 2023

and 2024.