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FINANCIAL ACCOUNTING AND REPORTING

Valuation or the Carrying Amount of Notes Receivable

 Notes receivable shall be presented at its present value or the discounted value of its
cash flows.
 As a rule, if the note is interest bearing and the interest rate is a realistic interest rate, the
face value of the note shall is the same with its present value. An exception to this rule is
that noninterest bearing notes shall not be discounted if they are short term. Although there
is still a difference between the face value and the present value, the discount is deemed
to be immaterial and therefore computing for the present value shall not be necessary.
 If the note is noninterest bearing and long term, the face value of the note includes the
interest to be earned over the term of the note, hence it is necessary to discount the cash
flows in order to present the notes at their present value.

 The same treatment shall be applied to interest bearing notes but bear an interest rate that
is unreasonably low. However, the total cash flows that will be discounted shall include the
future interest computed on the low interest rate.
 If the note if a term note, the present value of 1 concept shall be applied, if the note is an
installment note and the installments and intervals are equal, the present value of an
ordinary annuity shall be used.
 The 12 month collection period shall also be applied to determine if it’s a current asset or
non current asset. However, the present value shall be the amount to be presented, hence
the related discount shall be deducted from the face value of the note representing the cash
flow.

Loan Impairment Loss – Both PFRS 9 and US GAAP requires the assessment of the
collectability of a loan receivable and whenever circumstances and present information and events
indicate that it will be probable that any portion of the principal and interest agreed upon will not be
collected an allowance for the present value of cash flows that will not be collected shall be
recognized. The computation corresponding entry shall be as follows:

PV of expected cash flows X

Less: Face value X
Accrued interest X X
Loan impairment loss (X)

Loan impairment loss Xx

Interest receivable xx
Allowance for loan impairment xx

The interest receivable shall be written off if interest income already recognized shall not be
realized meanwhile the allowance shall be deducted from the current balance of the notes
receivable.

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