Fairly liquid Long Term Receivable Bears Unreasonable

Interest Rate (Below Market Interest Rate)

-easily converted into cash
- present value of future cash flows from
Notes Receivable
receivable discounted using imputed interest
1. Interest Bearing rate

- stated interest rate (or nominal, coupon Imputed Interest Rate

and face rate)
- also called as effective interest, market, yield
2. Non-Interest bearing rate
- Unspecified principal and interest - prevailing rate for a similar instrument of an
- PV computation is needed to separate issuer with similar credit rating
the interest from principal - rate of interest that discounts face amount of
receivable to current cash sales price
Trade Receivable
Effective Interest Rate
- Obtained from the ordinary course
- rate that discounts estimated future cash
Non-Trade Receivable payments through expected life of financial
- From other sources instrument
(Summary: pg 228-229)

A. Short term receivable Future Value

B. Long term receivable bears reasonable - If I deposit P1 today,
interest rate “how much will it be worth in the future”
C. Long term receivable bears no interest rate
(non interest) Present Value
D. Long term receivable bears unreasonable
- “how much do I have to deposit today to
interest rate (below market interest rate)
receive P1 in the future”
FV Annuity
Short Term Receivable
- several deposits, one withdrawal
- matures 1 year or less
- “if I make a series of equal deposits over
- equal to face amount
several periods, how much will they be in the
- if significant financing component, FV = PV
future”
Exceptions On Trade Receivable
- do not have significant financing component, PV Annuity
measured at transaction price
- “how much do I have to deposit to make
- may not be discounted if it is due within 1 yr
several equal withdrawals of P1 each over
Long Term Receivable Bears Reasonable equal periods in the future”
Interest Rate
-one deposit, several withdrawals
- face amount
- ‘reasonable’ market date at transaction date
2 Elements Segregated Using PV
Long Term Receivable Bears No Interest
Rate (Non Interest) 1. Principal Element
- measurement of NR
- present value of future cash flows from
receivable discounted using imputed interest 2. Interest Element
rate - recognized as unearned interest
- amortized over the life of note as II
FV & PV Of P1
- lump sum / one time basis
Current Portion
Annuity Factors
 Amortization in the immediately following
- installment
year
2 Types of Annuities  Portion of next year’s collection applied
to the principal
1. Ordinary Annuity
- End of the period Noncurrent Portion
2. Annuity Due
 PV in the Following year
- Beginning of the period
#8
Recoverable Historical Cost (NRV)
 Trial & Error approach
- Amount of cash expected to be
 Interpolation
recovered from the principal amount of
receivable
- Face amount of receivable – subsequent
repayments of principal – any reduction
Receivable
- initially measured at PV, subsequently
measured at Amortized cost
Amortized Cost
- for financial assets adjusted for any loss
allowance
Effective Interest method
- method of calculating the amortized cost
of financial asset/liability Type of Initial Subsequent
Receivable
- allocating the II or IE over the relevant Short term Fair value
period 1. face 1. Recoverable
amount historical
Simple Interest 2. PV cost
3. Transacti 2. Amortized
- computed on the outstanding principal on price cost
balance 3. Principles of
PFRS 15
Compound Interest Long term Fair value (FA) Recoverable
receivable Transaction costs historical cost
- on both principal and any existing bears
interest receivable reasonable
interest
Amortized rate

- added Long term Fair value (PV) Amortized cost

receivable Transaction costs
#3 bears no
interest
 UII is decreased as interests are earned, rate (non
interest)
balance must be zero
 Initial of UII = total of II Long term Fair value (PV) Amortized cost
receivable Transaction costs
#4 bears
unreasona
 Present Value balance must be zero ble interest
 Initial of UII = total of II rate (below
market
interest
rate)