NOTES RECEIVABLE

ILLUSTRATION: Interest-Bearing Note with Realistic Interest Rate

Requirement No. 1
Nest Selling prince = present value of
Principal = face value P100,000
Less: Carrying amount of machinery
Cost P500,000
Less: Accumulated depreciation 350,000 150,000
Loss on sale (P50,000)

ILLUSTRATION: Interest-Bearing Note with Unrealistic Interest Rate, One-Time

Collection of Principal.
Net Selling price:
Present value of principal (P100,000 x .5523) P55,230
Add: Present value of interest (P100,000 x 10% x 2.7982) 27,982
P83,212
Less: Carrying amount of machinery
Cost P500,000
Less: Accumulated depreciation 350,000 150,000
Loss on sale (P66,788)
Amortization table:
Date Interest Interest Discount Present value
collection income amortization
01/01/2018 P83,212
12/31/2018 P10,000 P13,314 P3,314 86,526
12/31/2019 10,000 13,844 3,844 90,370
12/31/2020 10,000 14,459 4,459 94,829
12/31/2021 10,000 15,173 5,171 100,000

ILLUSTRATION: Interest-Bearing Note with Unrealistic Interest Rate, Interest is

Payable Semi-Annually, One-Time Collection of Principal
Requirement NO.1
Net Selling price:
Present value of principal (P100,000 x .5403) P54,030
Add: Present value of interest (P100,000 x 5% x 5.7466) 28,733
P82,763
Less: Carrying amount of machinery
Cost P500,000
Less: Accumulated depreciation 350,000 150,000
Loss on sale (P67,237)
Amortization table:
Date Interest Interest income Discount Present value
collection amortization
01/01/2018 P82,763
06/30/2018 5,000 6,621 1,621 84,384
12/31/2018 5,000 6,751 1,751 86,135
06/30/2019 5,000 6,891 1,891 88,026
12/31/2019 5,000 7,042 2,042 90,068
06/30/2020 5,000 7,205 2,205 92,273
12/31/2020 5,000 7,382 2,382 94,655
06/30/2021 5,000 7,572 2,572 97,227
12/31/2021 5,000 7,778 2,773 100,000

ILLUSTRATION: Interest-bearing Note with Unrealistic Interest Rate, Uniform

Collection of Principal
Requirement No.1
Net Selling price= Present value of notes receivable P88,733
Less: Carrying amount of machinery
Cost 500,000
Less: Accumulated depreciation 350,000 150,000
Loss on sale (P61,267)

Present value of notes receivable:

Date Principal (A) Interest Total PV of 1 D Present
collection collection value E=CxD
(B) C=A+B
12/31/2018 25,000 10,000 35,000 0.8621 30,172
12/31/2019 25,000 7,500 32,500 0.7432 24,153
12/31/2020 25,000 5,000 30,000 0.6407 19,220
12/31/2021 25,000 2,500 27,500 0.5523 15,188
Total present value of notes receivable P88,733

Amortization table
Date Interest Interest Amortization Principal Present
collection income collection value
01/01/2018 P88,733
12/31/2018 10,000 14,197 4,197 25,000 67,930
12/31/2019 7,500 10,869 3,369 25,000 46,299
12/31/2020 5,000 7,408 2,408 25,000 23,707
12/31/2021 2,500 3,793 1,293 25,000

ILLUSTRATION: NonInterest-bearing Note, One-time Collection of Principal

Requirement No.1
Net Selling price= Present value of principal
(P500,000 x .6209) P310,450
Less: Carrying amount of machinery
Cost 500,000
Less: Accumulated depreciation 150,000 350,000
Loss on sale (P39,550)
Amortization table
Date Interest income Present value
01/01/2018 P310,450
12/31/2018 P31,045 341,495
12/31/2019 34,150 375,645

ILLUSTRATION: Noninterest-bearing Note, Uniform Collection of Principal

Requirement No.1
Net Selling price = present value of principal (P200,000 x 2.3216)
P464,320
Less: Carrying amount of machinery
Cost 500,000
Less: Accumulated depreciation 150,000 350,000
Gain on sale P114,320

Amortization table
Date Annual Interest income Amortization Present value
collection
01/01/2018 P464,320
12/31/2018 200,000 P65,005 P134,995 329,325
12/31/2019 200,000 46,105 153,895 175,430
12/31/2020 200,000 24,570 175,430 -

ILLUSTRATION: Noninterest Bearing Note Periodic Payment and with available

Cash Price
Requirement No.1
Net Selling price=Cash price P288,000
Less: Carrying amount of machinery
Cost 500,000
Less: Accumulated depreciation 200,000 300,000
Loss on sale (P12,000)

The difference of the cash price and the face value of the note of P12,000, is allocated
as follows:
Years Notes outstanding Fraction Allocated interest
income
1/1/18-12/31/18 300,000 3/6 6,000
1/1/19-12/31/19 200,000 2/6 4.000
1/1/20-12/31/20 100,000 1/6 2,000
Total P600,000 P12,000
Requirement 2

Interest income (P100,000 x 10%) =P10,000

Interest income = P13,314 (see amortization table above)

Interest income (P6,621 + P6,751) = P13,372 (see amortization table above )

Interest income = P14, 197 (see amortization table above)

Interest Income = P31,045 (see amortization table above)

Interest income = P65, 005 (see amortization table above)

Interest income =P6,000 (see table above)

Requirement No.3
Zero, since no principal amount is collectible within one year from the reporting date

Requirement No.3
Zero, since no principal amount is collectible within one year from the reporting date
Requirement No.3
Zero, since no principal amount is collectible within one year from the reporting date
Requirement No.3
Prncipal collectible within one year P25,000
Less: Discount amortization 3,369
Carrying amount of notes receivable P21,631
Requirement No.3
Zero, since the entire note receivable is collectible beyond one year.
Requirement No.3
Principal Collection next year P200,000
Less: Unearned interest income 46,105
Carrying amount of notes receivable P153,895
Requirement No.3
Principal collectible in 2019 P100,000
Less: Unearned interest income 4,000
Current portion of Notes receivable, Dec. 31, 2018 P96,000
Requirement No.4
The entire principal amount of notes receivable of P100,000 is treated as noncurrent
asset since it is collectible beyond one year from the reporting date.

Requirement No. 4
Principal Collectible beyond one-year P100,000
Less: Unearned interest income 13,474
Carrying amount of notes receivable P86,526

Requirement No.4
Principal Collectible beyond one year P100,000
Less: Unearned interest income 13,865
Carrying amount of notes receivable P86,135

Requirement No.4
Principal collectible beyond one year (P25,000 x 2) P50,000
Less: Discount amortization (P2, 408 + P1, 293) 3,701
Carrying amount of notes receivable P46, 299

Requirement No.4
Principal Collectible beyond one year 500,000
Less: Unearned interest income 124,355
Carrying amount of notes receivable P375, 645

Requirement No.4
Principal Collectible beyond one year P200,000
Less: Unearned interest income 24,570
Carrying amount of notes receivable P175,430
Requirement No.4
Principal collectible in 2020 P100,000
Less: Unearned interest income 2,000
Noncurrent portion of Notes Receivable, Dec. 31, 2018 P98,000