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Department of Accountancy: Holy Angel University Intermediate Accounting 1

Notes payable are recorded as a liability to represent a borrower's written promise to pay a lender. The note specifies the principal, due date, and interest. Notes payable are initially measured at fair value or transaction costs and subsequently measured at amortized cost or fair value through profit or loss. Amortized cost is calculated by reducing the principal repayments plus or minus the cumulative amortization of any difference between face value and present value using the effective interest method. Bonds issued with warrants or a conversion privilege require an allocation of the issue price or fair value between the bond and warrant or conversion components. The fair value option allows gains or losses on financial liabilities designated at fair value, with the change in

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Shania Liwanag
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51 views

Department of Accountancy: Holy Angel University Intermediate Accounting 1

Notes payable are recorded as a liability to represent a borrower's written promise to pay a lender. The note specifies the principal, due date, and interest. Notes payable are initially measured at fair value or transaction costs and subsequently measured at amortized cost or fair value through profit or loss. Amortized cost is calculated by reducing the principal repayments plus or minus the cumulative amortization of any difference between face value and present value using the effective interest method. Bonds issued with warrants or a conversion privilege require an allocation of the issue price or fair value between the bond and warrant or conversion components. The fair value option allows gains or losses on financial liabilities designated at fair value, with the change in

Uploaded by

Shania Liwanag
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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DEPARTMENT OF ACCOUNTANCY

SCHOOL OF BUSINESS AND ACCOUNTANCY


HOLY ANGEL UNIVERSITY

Intermediate Accounting 1
NOTES PAYABLE
Notes Payable

Liability account in which a borrower’s written promise


to pay to a lender is recorded. The written note
specifies the principal amount, the date due, and the
interest to be paid.
Initial Measurement (PFRS 9)
•Irrevocably designated
•Fair value
•Transaction costs – expensed outright
•Not designated to fair value through profit or loss
•Fair value – transaction costs (directly attributable0
Subsequent Measurement (PFRS 9)
a. Amortized cost – effective interest method
b. Fair value through P&L – designated irrevocably
Amortized cost of note payable
a. Minus principal repayment

b. Plus or minus the cumulative amortization using the


effective interest method of any difference between the
face amount and present value of the note payable
Note issued • Present value = cash proceeds
solely for Cash

Interest bearing
• Property/Asset = Purchase price (PV
note issued for of the note)
property
Notes Payable • Property = Cash price (PV of note
Non-interest issued)
bearing note • Difference between the cash price
and the face of the note issued
issued for represents imputed interests
property • Imputed interest – no lender will lend
asset interest-free
Allocation of • Bonds = market value of the bonds
ex-warrant
issue price • Warrants = residual amount

Bonds payable Unknown MV of


• Bond = PV of principal + PV of future
issued with bonds ex- interest payments
warrants
share warrants
• Holders gives the right to convert
Description their bonds into shares

Securities • Bonds and conversion privilege

Convertible • Bonds = market value of the bonds


Allocation of price without the conversion privilege
Bonds • Conversion privilege=residual amount

Unknown MV of
• Bond = PV of principal + PV of future
bonds without the interest payments
conversion privilege
Fair value option
Gain or loss on financial liability designated at fair value
shall be accounted for as follows:

a. Change in fair value attributable to credit risk is


recognized in OCI

b. The remaining amount of the change in fair value is


recognized in P&L

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