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DISCOUNTING OF NOTE RECEIVABLE Conditional Sale Secured Borrowing

Concept of discounting Cash Cash
Loss on NRD Int. Exp
In promissory note: NR discounted Liability for NRD
Original parties Int. Income Int. Income
1. Maker- one is liable
No gain / loss on
2. Payee- entitles to payment on the
date of maturity
Note is paid by maker in Maturity Date
Note- negotiable payee may obtain cash NR discounted Liability for NDR
before maturity date by discounting the NR NR
note, payee must endorse it first.
Payee- endorser *contingent liability *NRD and NR
Bank- Endorsee is extinguished derecognized
Note is dishonored by maker
ENDORSEMNT transfer of right to a To record the payment. MV+fees
negotiable instrument by simply signing at the AR AR
back of the instrument Cash Cash
To cancel the To derecognize the
With Recourse Without Recourse contingent liability liability for NRD
Endorser shall pay Endorser(payee) and NR
the endorsee(bank) if avoids future
the maker dishonors liability even of the NRD Liability for NRD
the note maker refuses to NR NR
pay the endorsee on
the date of maturity
Secondary liability
Contingent liability PFRS 9 paragraph 3.2.3
Compute the ff. Derecognize a financial asset when either of the
1. NP the ff. criteria is met:
2. CA of NR= P+AIR(int. income) 1. The contractual rights to the cash flows
3. Gain or loss on note discounting = of the financial asset have expired.
NP CA of NR 2. The financial asset has been transferred
Entries: and the transfer of qualities for
Cash (NP) derecognition based on the extent of
Loss on NRD transfer of risk and rewards of ownership
NR (P)
Int. Inc (AIR)
Conditional Sale Secured
Recognizing NR is not
contingent liability derecognized but
instead an acctg
liability is recorded
at the amount paid
=Face amt. of the
Guidelines for derecognition based on transfer of Risk 10. Discount period period of time from
and Reward of ownership. date of discounting to maturity date.
Dp= Term of the note - expired
FA-Derecognized FA-not be derecognized portion
1. Transferred 2. Retained
substantially all substantially all Discounting own note
risks and reward the risks and
reward 1. NP=P-D(p.r)
3. Neither derecognition depends on whether the
entity has retained control of the asset
2. Int. exp (Discount x p)
Lost control of the asset Retained control over
the asset Discount on NP
3. CA=Np- discount on NP
NRD-with recourse-unexpired- does not
apply in first criteria.
NRD-with recourse-does not fall 2 nd
Discounting transaction: combination of the
a. Substantially transfered all rewards
b. Retained substantially all risk
c. Lost control of the NR
1. Net Proceeds discounted value of note
received by the endorser from the
2. Maturity Value amount due on the
nore at the date of maturity.
3. Maturity date date on which the note
should be paid.
4. Principal Amount appearing on the
face of the note (face value)
5. Interest amount of interest in full term
of the note
6. Interest rate rate appearing in the face
of the note
7. Time period within in which interest
shall accrue. (Maturity date) (entire
period /full term of the note)
8. Discount amount deducted by the bank
in advance.
9. Discount rate rate used by the bank in
computing the discount