ACCT 1046 (Intermediate Accounting 1)

nd
22ndSemester
SemesterAcademic Year
School Year 2020-2021
2021-2022

LessonNOTES
7, WeekRECEIVABLES
5: Notes Receivable

Topics: a. Notes Receivable

Learning Outcomes: At the end of this module, you are expected to:
1. State the initial and subsequent measurement of notes receivables
2. Learn how to compute for present value factors and how to properly
apply them
3. Learn how to prepare amortization tables
4. Know how to compute for the effective interest rate

Lesson Proper:

Notes Receivables
-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. Can be an interest bearing note or non-interest bearing note.

*Summary of INITIAL and SUBSEQUENT measurement of receivables

Type of receivable Initial Measurement Subsequent Measurement
Short term receivables Fair value plus transaction costs -face amount initially; recoverable
*fair value is equal either to the historical cost(net realizable value)
a. face amount or -present value initially; amortized
b. present value cost
c. transaction price -transaction price initially; updated
using the principles under PFRS
15
Long term receivables bearing Fair value plus transaction Recoverable historical cost(net
reasonable interest rate plus(FV is equal to FA) realizable value)
Long term noninterest bearing Fair value plus transaction Amortized cost
note receivables plus(FV is equal to PV of future
cash flows from the receivable)
Long term receivables bearing Fair value plus transaction Amortized cost
unreasonable interest rate plus(FV is equal to PV of future
cash flows from the receivable)
NOTES:
1. When the cash price equivalent of the non-cash asset given up in exchange of the receivable is
determinable, the fair value of the receivable is equal to the cash price equivalent, except when the practical
expedient allowed by PFRS 15 is applicable.
2. If the initial measurement is cash price equivalent of the non-cash asset given up, the subsequent
measurement is amortized cost

FOR YOUR JOL

1. Interest-Bearing Note with Realistic Interest Rate
On January 1, 2018, Florendo Co. sold a machine to Gregorio Co. In lieu of cash payment, Gregorio
gave Florendo a 4-year, P100,000, 10% note. The note requires interest to be paid annually on December 31.
The machinery has a cost of P500,000 and accumulated depreciation as of January 1, 2018 of P350,000.
The 10% interest rate is a realistic rate of interest for a note of this type.
ACCT 1046- Intermediate Accounting 1 | 1
Required:
A. Compute for the following as of December 31, 2018:
1) Gain or loss on sale of machinery.
2) Interest income
3) Current portion of the Notes Receivable
4) Noncurrent portion of the Notes Receivable
B. Prepare all the necessary entries in 2018.

2. Interest-Bearing Note with Unrealistic Interest Rate One-Time Collection of Principal

On January 1, 2018, Gregorio Co. sold a machine to Florendo Co. In lieu of cash payment, Florendo
gave Gregorio a 4-year, P100,000, 10% note. The note requires interest to be paid annually on December 31.
The machinery has a cost of P500,000 and accumulated depreciation as of January 1, 2018 of P350,000. The
prevailing rate of interest for a note of this type is 16%.
Required:
A. Compute for the following as of December 31, 2018:
1) Gain or loss on sale of machinery.
2) Interest income
3) Current portion of the Notes Receivable
4) Noncurrent portion of the Notes Receivable
B. Prepare all the necessary entries in 2018.

3. Interest-Bearing Note with Unrealistic Interest Rate, Interest Is Payable Semi-Annually, One-
Time Collection of Principal
On January 1, 2018, Teofilo Co. sold a machine to Candido Co. In lieu of cash payment, Candido gave
Teofilo a 4-year, P100,000, 10% note. The note requires interest to be paid semi-annually every June 30 and
December 31. The machinery has a cost of P500,000 and accumulated depreciation as of January 1, 2018 of
P350,000. The prevailing rate of interest for a note of this type is 16%.
Required:
A. Compute for the following as of December 31, 2018:
1) Gain or loss on sale of machinery.
2) Interest income
3) Current portion of the Notes Receivable
4) Noncurrent portion of the Notes Receivable
B. Prepare all the necessary entries in 2018.

4. Interest-bearing Note with Unrealistic Interest Rate, Uniform Collection of Principal

On January 1, 2018, Candido Co. sold a machine to Teofilo Co. In lieu of cash payment, Teofilo gave
Candido a 4-year, P100,000, 10% note. The note requires interest to be paid annually on December 31. The
machinery has a cost of P500,000 and accumulated depreciation as of January 1, 2018 of P350,000. The
prevailing rate of interest for a note of this type is 16% and the principal amount of the note is to be paid in four
equal annual installments of P25,000 every December 31.
Required:
A. Compute for the following as of December 31, 2018:
1) Gain or loss on sale of machinery.
2) Interest income
3) Current portion of the Notes Receivable
4) Noncurrent portion of the Notes Receivable
B. Prepare all the necessary entries in 2018.

5. Noninterest-bearing Note, One-time Collection of Principal

On January 1, 2018, Rosenio Co. sold a machine to Rose Co. In lieu of cash payment, Rose gave
Rosenio a 5-year, P500,000 note. The machinery has a cost of P500,000 and accumulated depreciation as of

ACCT 1046- Intermediate Accounting 1 | 2

January 1, 2018 of P150,000. The note is a non-interest bearing note and the prevailing rate of interest for a
note of this type is 10%.
Required:
A. Compute for the following as of December 31, 2018:
1) Gain or loss on sale of machinery.
2) Interest income
3) Current portion of the Notes Receivable
4) Noncurrent portion of the Notes Receivable
B. Prepare all the necessary entries in 2018.

6. Noninterest-bearing Note, Uniform Collection of Principal

On January 1, 2018, Ronaldo Co. sold a machine to Ron Co. In lieu of payment, Ron gave Ronaldo a
3-year, P600,000 note. The machinery has a cost of P500,000 and accumulated depreciation as of January 1,
2018 of P150,000.
The note is a non-interest bearing note and the prevailing rate of interest for a note of this type is 14% and
the principal amount of the note is to be paid in three equal annual installments of P200,000 every December
31.
Required: A. Compute for the following as of December 31, 2018:
1) Gain or loss on sale of machinery.
2) Interest income.
3) Current portion of the Notes Receivable as of December 31,2018.
4) Noncurrent portion of the Notes Receivable as of December 31, 2018.
B. Prepare all the necessary entries in 2018.

7. Noninterest Bearing Note Periodic Payment and with Available Cash Price
On January 1, 2018, Jasmin Co. sold a machine to Tabs Co. In payment, Tabs gave Jasmin a 3-year,
P300,000 note. The machinery cost of P500,000 and accumulated depreciation as of January P200,000. The
machinery has a cash price of P288,000.
The note is a non-interest bearing and payable in three equal installments of P100,000 every
December 31 beginning December 31, 2018.
Required:
A. Compute for the following as of December 31, 2018:
1) Gain or loss on sale of machinery.
2) Interest income
3) Current portion of the Notes Receivable as of December 31, 2018.
4) Noncurrent portion of the Notes Receivable as of December 31, 2018.
B. Prepare all the necessary entries in 2018

Stay tuned to the online discussion for a thorough explanation. Thank you.

REFERENCES

1. Millan, Z. V. (2020) Intermediate Accounting Volume 1A, Baguio City: Bandolin Enterprise.
2. Valix, C. and Peralta, J. (2019) Intermediate Accounting Volume 1, GIC Enterprises & Co., Inc., Manila
3. Asuncion, D. O.(2018) Applied Auditing, Real Excellence Publishing, Aurora Hill, Baguio City 2600

ACCT 1046- Intermediate Accounting 1 | 3