NOTES PAYABLE

NOTES PAYABLE

A 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 a fixed or determinable
future time a sum certain in money to order or
to bearer.
MEASUREMENT
1. Initial Measurement: FV less TC
Measurement of Fair Value
Fair Value
A. INTEREST BEARING
• Stated Rate = Market Rate Face Amount
• Stated Rate ≠ Market Rate PV of cash flows using Market Rate
as of Initial Recognition
B. NONINTEREST BEARING PV of cash flows using Market Rate
as of Initial Recognition
MEASUREMENT
2. Subsequent Measurement
Interest Bearing Interest Bearing Noninterest
SR = MR SR ≠ MR Bearing
Interest Expense Face Amount x Carrying Amount x Carrying Amount x
SR MR MR
Carrying Amount Based on Present Value Present Value
each Reporting remaining face (Amortization (Amortization
Period amount Table) Table)
Accrued Interest Based on Stated Based on Stated NONE
Payable Rate Rate
Discount on NONE Based on Based on
Notes Payable Amortization Table Amortization Table
 ILLUSTRATION - 1:
Acquired land January 1, 2024
Downpayment 1,000,000
Promissory Note (Face Amount) 6,000,000
Stated Rate 10%
Term 3 years

Case 1: Term Note; Interest Bearing; interest is payable every

Dec. 31
 ILLUSTRATION - 1:
Acquired land January 1, 2024
Downpayment 1,000,000
Promissory Note (Face Amount) 6,000,000
Stated Rate 10%
Installment payment every Dec. 31 2,000,000

Case 2: Serial Note; Interest Bearing; interest is payable every

Dec. 31
 ILLUSTRATION - 1:
Acquired land May 1, 2024
Downpayment 1,000,000
Promissory Note (Face Amount) 6,000,000
Stated Rate 10%
Term 3 years

Case 3: Term Note; Interest Bearing; interest is payable every

April 30
 ILLUSTRATION - 1:
Acquired land October 1, 2024
Downpayment 1,000,000
Promissory Note (Face Amount) 6,000,000
Stated Rate 10%
Market Rate 12%
Term 3 years

Case 4: Term Note; Interest Bearing; interest is payable every

September 30 (SR ≠ MR)
 ILLUSTRATION - 1:
Acquired land January 1, 2024
Downpayment 1,000,000
Promissory Note (Face Amount) 6,000,000
Market Rate 12%
Term 3 years

Case 5: Term Note; Noninterest Bearing

 ILLUSTRATION - 1:
Acquired land January 1, 2024
Downpayment 1,000,000
Promissory Note (Face Amount) 6,000,000
Market Rate 12%
Installment payment every Dec. 31 2,000,000

Case 6: Serial Note; Noninterest Bearing

 ILLUSTRATION - 1:
Acquired land August 1, 2024
Downpayment 1,000,000
Promissory Note (Face Amount) 6,000,000
Market Rate 12%
Term 3 years

Case 7: Term Note; Noninterest Bearing

NOTES PAYABLE designated at FVPL
1. No Premium/Discount Amortization
2. Interest Expense = Face Amount x Stated Rate
3. FV changes – recognize in Profit/Loss or Income
Statement
 ILLUSTRATION - 2:
On January 1, 2024, Jonathan Company borrowed P500,000 8% note
due in four years. The present value of the note on the date of issuance
was P367,500. The entity elected irrevocably the fair value option in
measuring the note payable. On December 31, 2024, the fair value of
the note is P408,150.
1. What is the carrying amount of the note payable on December 31, 2024?
2. What amount should be reported as interest expense for 2024?
3. What amount of gain from change in fair value of the note payable should
be reported for 2024?
4. At what amount should the discount on the note payable be presented on
December 31, 2024?
DEBT RESTRUCTURING
DEBT RESTRUCTURING
- Is a situation where the creditor, for
economic or legal reasons related to the
debtor’s financial difficulties, grants to the
debtor concession that would not otherwise
be granted in a normal business
relationship.
TYPES OF DEBT RESTRUCTURING
1. Asset swap
2. Equity swap
3. Modification of terms
ASSET SWAP
PROBLEM 1
EQUITY SWAP
PROBLEM 2
PROBLEM 2
PROBLEM 2
EQUITY SWAP
MODIFICATION OF TERMS
MODIFICATION OF TERMS
PROBLEM 3
PROBLEM 4