intacc 1

• interest bearing notes have a stated interest/nominal rate/coupon rate/face rate
• noninterest bearing notes do not have a stated interest rate because they include the interest element as part of the face amount
• receivables are initially measured at fair value plus transaction cost
• short term receivable is equal to its face amount but if it contains a significant financing component, it is equal to present value
• a trade receivable may not be discounted if it is due within 1 year
• trade receivables that do not have significant financing component shall be measured at their transaction price
• long term interest bearing is equal to face amount
• long term noninterest bearing notes and long term receivable that has an unreasonable interest rate is presented at fair value
• other term for imputed rate of interest are effective interest rate, market rate and yield rate
• difference between present value and face amount is the unearned interest
• future value of an amount --- FV=(1+i)^n
• present value of an amount---PV=(1+i)^-n
• application of present value in relation to receivables is based on the concept that all notes receivable contain an unspecified principal and unspecified interest
• principal element represents the measurement of notes receivable
• interest element is initially recognized as unearned income and amortized over the life of the note as interest income
• the unearned interest income is a deduction to the note receivable when computing for the note's carrying amount
• a receivable that bears a reasonable interest rate need not be discounted to present value because its face amount is deemed its principal amount
• the present and future value of 1 are applicable only when the cash flow is on a lump basis--one-time basis. If there are series of cash flows, the annuity factors shall be used
• in ordinary annuity, deposits are made at the end of the period
• in annuity due, deposits are made immediately or in advance
• FV of an ordinary annuity--(1+i)^n -1 / i
• fv of an annuity due--- (1+i)^n+1 -1 / i -1
• present value of an ordinary annuity: 1-(1+i)^-n / i
• present value of an annuity due: 1-(1+i)^-(n-1) / i +1
• in future value of an annuity, there are several deposits and one withdrawal. in present value, there is one deposit and several withdrawals
• discount on note receivable can be used for unearned interest income
• principal - unearned interest income - first installment = carrying amount after the receipt of first installment
• present value is also in installment but the date of deposits are different
• receivables initially measured at face amount is subsequently measured at historical cost
• receivables initially measured at present value is subsequently measured at amortized cost
• if the initial measurement is cash price equivalent, it is subsequently measured at amortized cost
• in compound interest, interest is recognized separately as interest receivable all throughout the life of the note
• current portion is the amortization in the following year while the non-current is the present value of the following year
• the sum of current and noncurrent portions are equal to the carrying amount
• unamortized balance of unearned interest income is derived by deducting present value from the outstanding face amount(installment)
• interest is earned only when there is a passage of time
• when the series of cash flows vary, the PV of 1 should be used
• interest receivable= nominal rate x face amount
• total interest income recognized over the life of a note bearing an unreasonable interest rate is equal to the sum of unearned interest income on initial recognition and subsequent cash collections for interest
• if it is interest bearing, unearned interest column is ignored