Notesale: Turn your study into money

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NOTES RECEIVABLES

Notes Receivable shall be initially measured at PRESENT VALUE
...


It is the current worth to be received in the
future with one or more payments, which
has been discounted at a market rate of
interest
...

The process of converting a value received in
a future time period to an equivalent value
received immediately
...

- It is the rate used to calculate Interest collection under
the Amortization table
...

- It is the rate used to calculate interest income under the
Amortization Table
...


Nominal Rate > Effective Rate

Nominal Rate = Effective Rate
Nominal Rate < Effective Rate

NOTES
RECEIVABLE

If the Nominal interest rate is
greater than the Effective Rate,
then the Note is trading at a
Premium
...


Lump Sum (One-time collection)

Use Present Value of 1

Installment (Per period collection)

Use Present Value of an ordinary annuity of 1
if the payment is received at the end of each period; or

NON-INTEREST BEARING
No Nominal Rate but with Effective Interest
rate
Lump Sum (One-time collection)
Installment (Per period collection)

Use Present value of annuity due of 1
if the payment is received at the beginning of each period
...
(One-time
collection of payment)
...
(Installment collection/payment)
...
(Installment collection/payment

Illustration:
Mr
...
Y a 4-year, Php100,000, 10% note
...
Effective interest for the note is 16%

Illustration:
Mr
...
Y a 4-year, Php100,000, 10% note
...

Effective interest for the note is 16%

Illustration:
Mr
...
Y a 4-year, Php100,000, 10% note
...
Effective interest for
the note is 16%

Solution:
Principal is one time collection according to the problem,
therefore we will use the PV of 1
...


Solution:
Principal will use PV of 1
Interest will use PV of Annuity Due of 1

Solution:
Principal’s PV of 1 is 0
...
16 in your calculator
...

Step 3: press “equals” four times because the principal will
be paid at the end of 4th year
...
5523 because principal and
interest will be collected at the end of 4th year
...
16 in your calculator
...

Step 3: press “equals” four times because the interest will
be collected at the end of each year for 4 years
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16, then press equals
...
16 in your calculator
...

Step 3: press “equals” three times
Step 4: press minus (1) one, then “equals”
Step 5: press “divide”, then input the effective interest rate
of 0
...

Step 6: remove the negative sign by pressing (+/-)
Step 7: press plus (1) one, then “equals”
(Calculator should present 3
...


NOTES RECEIVABLE: REALISTIC RATE
No need to use Present Value, if Nominal
Rate is equal to Effective Rate, because it
will always equal to the Face Value of the
Note Receivable
...
sold a car to Mr
...

In lieu of cash payment, Mr
...

Note:
Cost of car:
Accumulated Depreciation:

PROBLEM:
During the calendar year, a customer gave
4 year, Php 50,000, 5% note to ABC Company
that requires interest to be paid annually
...


100,000 Loss on Sale of Car

Interest Income
Php 200,000 x 12% = 24,000
Current Portion of Principal
None
...

Noncurrent Portion of Principal
The noncurrent portion is Php 200,000

If the principal or portion of it is collectible within one year from the reporting
date, then the principal or portion of principal is considered “current”
...
sold a car to Mr
...

In lieu of cash payment, Mr
...

Note:
Cost of car:
Accumulated Depreciation:
Effective Interest:

113,726
Loss on Sale

5-year, Php 200,000, 12%
Php 1,000,000
Php 700,000
14%

AMORTIZATION TABLE

Present Value x Effective Interest Rate
Difference between Interest Collection and
Interest Income
...


Present Value of Note
Previous Present Value of Note
Add Amortization if Note is trading at DISCOUNT
...


Face Value of Note x Nominal Rate
There is no Current portion of the Notes Receivable since the principal is collectible beyond one year from reporting date
...


NOTES RECEIVABLE: UNREALISTIC RATE (INSTALLMENT COLLECTION OF PRINCIPAL)
On January 1, 2024, ABC Co
...
Z
...
Z gave promissory note that
requires principal to be paid in five equal annual installments
and the Interest to be paid annually at the end of each year for 5
years
...


5-year, Php 200,000, 12%
Php 1,000,000
Php 900,000
14%

200,000 x 12%
(200,000 – 40,000) x 12%
(200,000 – 40,000 – 40,000) x 12%

“Principal to be paid
in five equal annual
installments”
...


There should be no Present Value
at the end of the 5th year because
all the principal installments are
already collected
...
The note presents 3 year, Php 500,000 non-interestbearing note
...


NOTE!
It is called non-interest bearing because no interest
rate is stated on the note, however it does not mean
that the note has no effective interest rate
...


SOLUTION:
No current portion for Non-Interest-Bearing
note, therefore, the full amount of 500,000 is
treated as non-current asset because it is
collectible beyond one year
...

375,650 x 10% (Effective Interest Rate)

NOTES RECEIVABLE: Non-interest-Bearing Note (Installment Collection of Principal)
PROBLEM:
On January 01, 2024, Sky company gave XYZ company a promissory note
...
The prevailing interest rate is 10%
...

SOLUTION:
Php 500,000 is the collection of principal every end of
the year, therefore we will use the Present Value of
Ordinary Annuity of 1
...




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