CHAPTER 12 masters degree subject NOTES RECEIVABLE.pptx

notes receivable topic

1. 2024 JAMIL C. SANCEDA Notes Receivable Financial Accounting

2. Chapter 12 NOTES RECEIVABLE Learning Objectives State the initial and subsequent measurements of notes receivable. Compute for present value factors and apply them properly. Prepare amortization tables. Compute for the effective interest rate.

3. Note receivables Notes receivable is a claim supported by a formal promise to pay a certain sum of money at a specific future date usually in the form of a promissory note.

4. Initial measurement Receivables are initially recognized at fair value plus transaction costs .

5. Summary of Measurements Type of receivable Initial measurement Subsequent measurement 1. Short-term Face amount/ Present value/ Transaction price (for trade receivables) Recoverable historical cost/Amortized cost/PFRS 15 2. Long-term Face amount Recoverable historical cost 3. Long-term w/ zero interest Present value Amortized cost 4. Long-term w/ unreasonable interest Present value Amortized cost The fair value of the receivable at initial recognition may be measured in relation to the cash price equivalent of the noncash asset given up in exchange for the receivable. In such case , the subsequent measurement of the receivable is at amortized cost .

6. Time Value of Money FV of ₱1 vs. PV of ₱1 The FV of ₱1 and PV of ₱1 are opposites . The FV of ₱1 answers the question “If I invest ₱100,000 today at 10% interest, how much money do I have in three-years’ time ?” FV of ₱1 = (1 + i ) n = (1 + 10%) 3 = 1.331 Answer: (₱100,000 x 1.331 ) = ₱133,100 or (₱100,000 x 110% x 110% x 110%) = ₱133,100 The PV of ₱1 answers the question “If I want to have ₱133,100 in three-years’ time, how much money do I have to invest today (at 10% interest)? PV of ₱1 = (1 + i ) -n = (1 + 10%) -3 = 0.751315 Answer: (₱133,100 x 0.751315 ) = ₱100,000

7. PV of ₱1 In the second example, the ₱133,100 to be received in 3-years’ time includes an unspecified principal and unspecified interest . These elements are separated through present value computations. Therefore, assuming the ₱133,100 is a receivable , it should be recorded today only at ₱100,000 (the present value) because the ₱33,100 is unearned interest. The interest will be recorded only when it is earned, i.e., through passage of time . 1 ₱ 133,100 PV computation ₱ 100,000 principal ₱ 33,100 unearned interest

8. Time value of money (continuation) PV of ₱1 is used when the cash flow is lump sum or when cash flows are non-uniform. PV of ₱1 = (1 + i ) -n PV of ordinary annuity ₱1 is used when the cash flows are in installments and the first installment does not begin immediately. PV of an annuity due of ₱1 is used when the cash flows are in installments and the first installment begins immediately .

9. Effective Interest Method PV of ₱1 amortization table

10. Effective Interest Method PV of annuity amortization table

11. APPLICATION OF CONCEPTS   FOR CLASSROOM DISCUSSION

12. OPEN FORUM QUESTIONS???? REACTIONS!!!!!

13. END