CHAPTER 6 NOTES RECEIVABLES

Interest-bearing since it is explicitly

APPLICABLE ACCOUNTING STANDARDS stated in the contract the % of
 PFRS 9 – Financial Instruments Notes interest. (Interest bearing means
 PAS 32- Financial Instruments – disclosure and (Interest- nagpautang ka ng inventory worth
Bearing) 10k and payable within 1 year. So 2
presentation
years na ang lilipas. Ang gagawin
 PAS 1- Presentation of Financial Statements
dito yung 2% na interest is
immultiply sa 2 years.)
NOTES RECEIVABLE At PRESENT VALUE (PV)
A note receivable is a claim supported by a formal Long-Term
promise to pay a certain sum of money at a specific Notes (Non Actually, all notes implicitly contain
future date usually in the form of a promissory note. Interest – interest.
(written promise na magbabayad talaga siya at a Bearing)
certain period of time). It was called noninterest simply
because interest is being included in
It involves the MAKER and the PAYEE. (Maker- gumawa the face amount rather than stated
ng promissory note. Payee- yung babayaran). separately (unline interest bearing).

NOTES RECEIVABLE RECOGNITION SUBSEQUENT MEASUREMENT

Applying the recognition definition of PFRS 9 (Financila Short-Term Notes At FACE VALUE
Instruments) At AMORTIZED COST
Long-Term Notes
using the effective
 When the entity becomes a party to the contract or (Interest-Bearing)
interest method.
when the transfer of resources transpired. (once
At AMORTIZED COST
na kasama ka na sa agreement. Nirrecognize na
using the effective
yan. Or when the transfer of resources transpired. interest method.
For example, trading. Ang nangyayari, ikaw ang (amortization,
business, ako ang customer. Bumili ako sa iyo. nababawasan yung
Hindi ko binayaran ng cash. Nag issue ako ng utang mo kung ikaw
promissory note. Kung di pa ako nag iissue ng bumili. Nag aamortized).
promissory note, pero nagkaroon na ng transfer of
Long-Term Notes (Non-
resources. Naibigay na sa customer. At napag Amortized Cost= PV +
Interest Bearing)
usapan na mag iissue siya ng promissory note. So Amortization of the
pwede ng irecognize yon dahil may transfer of Discount
resources na).
Or
INITIAL MEASUREMENT
Face value minus
Notes Receivable should be
unamortized unearned
measured initially at PRESENT
interest income.
IN GENERAL VALUE (PV).
(Conceptually
TIME VALUE OF MONEY CONCEPT AND
) *sum of all future cash flows
discounted using the effective COMPOUNDING OF INTEREST
interest rate (prevailing market This topic will teach us on how to compute the present
rate) value factors used in the computation of present values.
At FACE VALUE. Because present values are normally used in computing
Short-Term the initial measurement of a financial instrument
Notes Why not PV? normally receivables, liabilities and any other topics in
It is immaterial to compute the PV. accounting.
(Pag nag compute ka ng PV ng 10k,
either mababa lang yan ng onti. A We need to understand the value of money, because
matter of points are immaterial ang the value of money TODAY is not the same with the
difference niya. Closed to 10k pa rin. value of money FEW YEARS AGO and the value of FEW
Para di ka mahirapan, you value
YEARS FROM NOW.
short term notes at FACE VALUE.)
Long-Term At FACE VALUE upon issuance.
Present Value = Amount x Present Value Factors
TV of Money
1990s Today(PV) 2030(FV)
P1,000
*yang 1k today, marami pang mabibili yan sa 1990s.
pero pag dating ng 2030, mas onti na yung mabibili
kung patuloy yung pag taas ng bilihin. Pero hindi pa rin
naman nababago yung face amount niya. 1k pa rin. Pero
kasi ang nangyayari, yung purchasing power (kakayanan
ng pera mo na makabili) is humihina because of
inflation. Hindi nga bumababa ang amount mo pero,
yung purchasing power mo is humihina dahil sa pagtaas
ng bilihin. Paglipas ng panahon, very important na
namamaximize mo yung pera mo. If pinatulog mo lang
yang 1000 mo, kahit 10 years pa yan. Hindi magbabago
value niyan. But definitely hihina na yung purchasing
power nyan.
So if may 1000 ka pwede mong iinvest at kikita yan. At
dito papasok yung compounding of interest.
Simple Interest vs Compound Interest
Simple Interest- 10,000 (Principal) x 10% (Nominal
Rate) x 2 years= P2,000 (if annually)
First Year = 10k x 10% = 1,000
Second Year = 10k x 10% = 1,000
TOTAL = 2,000
Kikita ka ng 1,000 per year (10k x 10%)
Compound Interest (interest na nanganganak ng
bagong interest)
10,000 (Principal)
10% (Nominal Rate)
2 years
First Year = 10k x 10% = 1,000
Second Year = 11k x 10% = 1,100
TOTAL = 2,100
EXPLAINING THE CONCEPT OF PRESENT VALUE AND
FUTURE VALUE
STORY TELLING
When you were young, your grandmother gave you a
certain amount of money byt you don’t remember how
much it was. You decided to put this amount to the
bank for 7 years with 6% interest rate and became P100
after 7 years. Question, how much was the amount
given to you at the beginning?
PRESENT VALUE- what is today’s value of tomorrow’s
cash BEFORE the interest rate is applied in the money?
FORMULA: PRESENT VALUE= FV (1+r)^-n
Where r= rate; n= years/time
Solve: PV= 100 (1+6%)^-7= P66.51
FUTURE VALUE- what is tomorrow’s value of today’s
cash AFTER we applied in the interest rate in the
money?
FORMULA: FUTURE VALUE= PV (1+r)^n
Solve: FV= 66.51 (1+6%)^7 = P100
3 TYPES OF PRESENT VALUE FACTORS
1. Present Value of 1
 ginagamit kapag one time payment ang principal
amount.
 used if and only if may one time payment or
collection lang (ibig sabihin yung utang na yan ay
minsanan lang babayaran sa future) or may periodic
payments or collections usually uneven (ibig sabihin
hindi pare pareho yung collections every year).
2. Present Value of Ordinary Annuity of 1
 installment kang nagbabayad ng principal kasama
yung interest.
 used if there are periodic payments or collections
usually even. The first periodic payment or
collection was the only after 1 period (ibig sabihin
dapat lumipas muna yung 1 year bago magbayad or
bago maka collect . bago gamitin si PVF of Ordinary
Annuity of 1)
3. Present Value of Annuity Due of 1
 installment din ang pagbabayad. Pero sa unang part
pa lang nagbayad ka na agad. Or sa simula pa alng
ng contract is nagbayad ka na agad.
 used if we have periodic payments or collections
that are also even. But this time, the first payment
or collection will be actually on the first day. The
payment or collection is actually in advance.
________ _______________________
NR
ST LT
IB NIB IB NIB
explicit implicit
In general, minemeasure natin yung notes receivable
initially sa kanilang PRESENT VALUE (The value today).
Pero dahil nga maiksi lang ang span of time ng short 1. ACCOUNTING FOR INTEREST-BEARING NOTES
term notes receivable. 1 year or less lang. hindi RECEIVABLE WITH REALISTIC INTEREST RATE
masyadong nagkakaiba yung face value at present value (NR/SR=ER)
niya. Kaya nga kung magkano talaga ang sinabi sa
problem. Ang pinag uusapan naman natin ay short PROBLEM (One time collection of Principal)
term, yung PRESENT VALUE niya ay EQUAL na rin sa
FACE VALUE (PV=FV). Kaya nga ang magiging initial
measurement mo dito sa short term notes receivable
na IB and NIB ay face value pa rin.

In Long term notes receivable. Pwede rin siyang IB and

NIB. Pag IB is explicit or sinasabi don sa document or
agreement or promissory note kung magkano talaga
yung nominal rate or stated rate. Stated rate means
nakastate don sa promissory note kung magkano talaga
ang babayaran. Pag NIB, implicit siya. Hindi siya totally
na walang interest pero nakapaloob na siya sa
babayaran mo.

Pagdating kay IB, ang nangyayari. May tinatawag tayong

REALISTIC RATE and UNREALISTIC RATE. Yung rate na
nakastated sa ating notes is called nominal or stated
*lieu- kapalit ng cash
rate. Effective Rate or Effective Interest Rate means rate
na ginagamit sa kung ano talaga ang kalakaran sa
SOLUTION
market. Kapag ang rate na ginamit sa NR/SR ay 10% ang
naging interest rate, at 10% rate rin sa ER. Ibig sabihin
equal yung dalawa. Ang tawag don ay REALISTIC RATE
or IB REALISTIC RATE. Kasi equivalent yung pinag
usapan niyo sa agreement o promissory note sa kung
magkano yung kalakaran sa market.

NR/SR (10%) = ER (10%) – used FACE VALUE (equal lang

sa consideration na marreceive mo)

Unrealistic rate, yung nakastate na rate sa pinag usapan

ay malayo sa kung magkano yung kalakaran sa market.
For ex.

NR/SR (10%) < ER (15%) – used PRESENT VALUE

(present value ng marreceive mong amount. Present
Value ng kung magkano yung marreceive mo na
Principal and Interest)
Summary:
Short Term NR- measure at FV initially
Long Term NR (either IB or NIB)- measure at PV initially ;
measure at amortized cost subsequently using EIR.
*150,000- carrying value/book value
*REQUIREMENT 3- walang current portion. Kasi sabi sa
prob, babayaran daw after 4 years pa. So yung principal
amount na 100k. mababayaran yan after 4 years.
Meaning wala kang irrecognize or walang current
portion na notes receivable. Lahat yon ay noncurrent
portion.
*as of jan 1, 100k yung NR.
*dahil binebenta na natin yung machinery,
maeeliminate or madderecognize na siya. Pag sinabing
madderecognize, aalisin na natin siya sa record kasi
binebenta na natin. So nagdebit tayo ng ACCUM DEP na
dating naka credit kasi nga mawawala na siya.
*binebenta ni obito yung machinery ng 150k, pero ang
nareceive lang niya is 100k from deidara. Kaya may loss
na 50k.
2. ACCOUNTING FOR INTEREST-BEARING NOTES
RECEIVABLE WITH UNREALISTIC INTEREST RATE
(NR not equal ER)
PROBLEM (Interest is payable annually. One time
collection of Principal)
*Nominal Rate (10%) < Effective Rate (16%)
*if the situation is like this, we need to compute the
present value of cash inflows. Ano ba yung present
value of cash inflows? Ito yung kung magkano yung
papasok na principal and interest sa iyo. Need na
present value yung principal and interest.
*since one time payment ang principal, ang gagamitin
mo ay PV of 1. ang sabi rin, ang interest ay ANNUALLY.
So gagamit ka rin ng PV of Ordinary Annuity of 1.
*we need to compute the PRESENT VALUE of
PRINCIPAL. Pag magccompute tayo ng PV of 1. We need
to compute for the present value factor.
*to get 0.5523:
PVF of 1= (1+0.16)^-4= 0.5523
*yung 100k na future value, ay 55230 daw ang present
value.
*to get 2.7982:
PV of ordinary annuity of 1= 1-(1+0.16)^-4 / 0.16=
2.7982
*add 55,230+22,982= 83,212 kasi yan lahat ng cash
inflows mo.
*if tinanong hm is the present value of notes
receivable? 83 212
*interest collection- actual na marreceive
*PV= 83,212 and FV=100,000
*83,212 X 16%= 13,314 and so on
*to arrive to 86,526= 83,212+3,314 and so on
*REQUIREMENT 2- interest income yan AS OF 2021
*REQUIREMENT 3- zero pa rin kasi after 4 yrs pa
babayaran.
*REQUIREMENT 4- to get 13 474: discount amortization
column (3844+4459+5171) or (100k-83212= 16788-
3314) or can be seen in table
 *PV OF INTEREST: 5% na lang since semi annually
na. hahatiin mo yung 10%. To get 5.7466:
PV of Ordinary Anuuity of 1= 1-(1+0.08)^-8 / 0.08

*nagdebit ng unearned interest income kasi na earned

mo na yung portion na yon or nadiscount ng
amortization.

3. ACCOUNTING FOR INTEREST-BEARING NOTES

RECEIVABLE WITH UNREALISTIC INTEREST RATE
(NR not equal ER)

PROBLEM (Interest is payable semi-annually. One

time collection of Principal) *6/30 and not 6/33 ^^^
*walang pinagkaiba sa number 2. Kasi hinati lang
payment

*100k-82763= 17237-1621-1751= 13865

*semi annually: every june 30 and dec 31

*to get 0.5403:

PVF of 1= (1+8%)^-8 (yung effective rate hahatiin
mo kasi semi annually na. instead of 16%, gagawing
8%. And then instead of 4 periods, magiging 8
periods na.
4. ACCOUNTING FOR INTEREST-BEARING NOTES *12/31/23 of interest collection (b) = 50,000 x 10% = 5k
RECEIVABLE WITH UNREALISTIC INTEREST RATE (kaya 50k kasi yung first 2 years nagbayad na ng tig
(NR not equal ER) 25k).
*12/31/24 of interest collection (b) = 25,000 x 10% =
PROBLEM (Interest is payable annually. uniform 2500
collection of Principal)(UCOP means every year
nakakakolekta ka ng portion ng principal. Kumbaga *PRESENT VALUE EVERY PERIOD
ginawang installment. Kasama nung interest na 12/31/21 = 35k x 1.16^-1
annually din. Hindi lang siya one time collection. 12/31/22 = 32500 x 1.16^-2
12/31/23 = 30k x 1.16^-3
12/31/24 = 27500 x 1.16^-4

*100,000/4 installments= 25k every year kasama nung

interest. maccollect yan yearly.
*Interest collection is given
*88,733X16%= 14197
*14197-10K= 4197
*88733+4197-25000=67930

*REQUIREMENT 4: why 50k? kasi yung total talaga is

100k diba. Dahil nagbayad ng 25k sa first year. 75k na
lang balance. So yung 25k is the current, and 50k is
noncurrent.

*TOTAL CASH INFLOW OR CASH COLLECTIONS (CI/CC)

*makakacollect ka ng 25k of principal yearly
*12/31/21 of interest collection (b) = 100,000 x 10% =
10k
*12/31/22 of interest collection (b) = 75,000 x 10% =
7500 (kaya 75k kasi yung unang taon nabayaran na ng
*as of dec 31, may 35k na yung collection. Kasi
25k)
nagbabayad ng installment na 25k at interest na 10k.
*yung last entry sa amortization table makikita. Nagkakaroon kasi ng round off. Kaya ginawang 45470
para magsakto.
5. ACCOUNTING FOR NONINTEREST-BEARING NOTES
RECEIVABLE

PROBLEM (One time collection of principal)

150,000

*REQUIREMENT 4: 500K-310450(PV)= 189550-31045=

341495

500K
150k
39550

SOLUTION

350,000 PROBLEM (Uniform colletion of principal)

150k

*net selling price=PV

*500K yan yung maccollect mo after 5yrs. Called
settlement amount.
*ang cinocompute ay present value. Anong present
value ang gagamitin? PV of 1. Kasi one time payment
lang naman.
*to compute 0.6209:
1.10^-5
*310450 is the PV of Principal
*310450 x 10%= 31045 and so on
*may discrepancy sa dulo. Kaya may asterisk. Pag
minultiply 454,531 sa 10% hindi 500k ang lalabas. Dahil
kasi yan sa computation ng present value factor.
SOLUTION PROBLEM (Periodic payment and with available cash
price)

*to compute for 2.3216:

Use ordinary annuty
Solve:
PV of Ordinary Annuity= 1-(1.14^-3) / 0.14 = 2.3216
*sa annual collection, nakakacollect tayo ng 200k
yearly.
*464320x14%= 65005
*200k-65005= 134995
SOLUTION

*kapag given ang cash price, yana ng gagamitin na net

selling price.
*300000-288000= 12k
*kaya nakuha yung over 6 (/6) doon sa 600k na total.
*multiply fraction sa 12k para makuha allocated
interest income.
*yung 4k ay galing doon sa table bago nitong last na
table. Kasi nga as of 12/31/21. Yung 4k is still
unearned.

*fair value less cash price (FV-CP)

*credit machinery kasi nabenta na
*Installment 100k every year kaya nagrecord
*unearned interest income na amortized nasa table
yung 6k