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Intermeddiate Accoutning
Intermeddiate Accoutning
The term “notes receivables” represents only claims arising from sale of
merchandise or service in the ordinary course of business.
Thus, notes received from officers, employees, shareholders and affiliates shall
be designated separately.
What if the promissory note matures and is not paid? Apparently, promissory notes
that are already due are said to be dishonored as a notes receivables, since the
essence of it as a negotiable instrument has lost its part and should be transferred from
notes receivables to accounts receivable.
Accounts Receivable xx
Notes Receivable xx
Interest Income xx
Why at face value? Because the effect of discounting short-term notes receivable is
usually immaterial.
Long-term notes receivable are initially measured depends on whether the notes are
interest-bearing or noninterest-bearing.
Interest-bearing long-term notes are measured at face value which is actually the
present value upon issuance.
Noninterest-bearing long-term notes are measured at present value which is the
discounted value of the future cash flows using the effective interest rate.
After the initial measurement, there is a following measurement.
Long-term notes receivable shall be measured at amortized cost using the effective
interest method.
Feasible Company sold to another entity a tract of land costing P5,000,000 for
P7,000,000 on January 1, 2018. The buyer paid P1,000,000 down and signed a two-
year promissory note for the remainder of the purchase price plus 12% interest
compounded annually. The note matures on January 1, 2020.