NONCURRENT LIABILITIES Overview on the topic: Chapter Title Sub-topics___
23 Noncurrent Liabs. - Part 1 Notes & Loans payable
24 Noncurrent Liabs. - Part 2 Bonds payable,
Compound instruments, and Derecognition of liabilities
IFA PART 2: Zeus Vernon B. Millan
Chapter 23 Noncurrent Liabilities (Part 1)
Learning Objectives
State the initial and subsequent
measurement of notes and loans payable. Apply present value factors properly. Prepare amortization tables. Explain the accounting for origination fees on loans payable.
IFA PART 2: Zeus Vernon B. Millan
Notes payable
Notes payable are obligations supported by
debtor promissory notes. The accounting for notes payable is similar to the accounting for notes receivable.
IFA PART 2: Zeus Vernon B. Millan
Initial measurement of financial liabilities Financial liabilities are initially recognized at fair value minus transaction costs that are directly attributable to the issuance, except for financial liabilities at FVPL whose transaction costs are expensed immediately. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Transaction costs are incremental costs that are directly attributable to the issue of a financial liability. An incremental cost is one that would not have been incurred if the entity had not issued the financial instrument.
IFA PART 2: Zeus Vernon B. Millan
Short-term notes payable are initially measured either at face amount or present value. Long-term notes payable with reasonable interest rate are initially recognized at face amount. Long-term noninterest-bearing notes payable and Long-term notes payable with unreasonable interest rate are initially measured at present value. If the cash price equivalent of the noncash consideration received in exchange for the note is available, the note payable is initially measured at this amount.
IFA PART 2: Zeus Vernon B. Millan
Stated interest rate vs. Effective interest rate
Stated interest rate (nominal rate, coupon rate, or face
rate) is the rate appearing on the face of an interest- bearing note. Effective interest rate (imputed rate of interest, current market rate or yield rate) is the rate used in present value computations.
IFA PART 2: Zeus Vernon B. Millan
Loan payable
Origination fees are deducted from the carrying
amount of the loan and subsequently amortized using the effective interest method. Origination fees are included in the calculation of the effective interest rate over the expected term of the loan payable, meaning, on transaction date, the origination fees are treated as adjustment to the effective interest rate.
G.R. No. L-53955 January 13, 1989 THE MANILA BANKING CORPORATION, Plaintiff-Appellee, ANASTACIO TEODORO, JR. and GRACE ANNA TEODORO, Defendants-Appellants. Bidin, J.