Chap09_2e wiley principle of Accounting.pptVIP

NOTES RECEIVABLE continued Accounting issues Determining maturity dates Computing interest Recognising notes receivable Valuing notes receivable Selling notes receivable PowerPoint presentation by Dr Anne Abraham, University of Western Sydney * Determining the maturity date The life of the note may be expressed in terms of months days 1. Life of note expressed in months The due date is found by counting the months from the date of issue e.g., Maturity date of a 3 month note dated 1 May is 1 August PowerPoint presentation by Dr Anne Abraham, University of Western Sydney * LO5 Determining the maturity date continued (b) Life of note expressed in days Need to count the days Date of issue is omitted but due date is included e.g., Maturity date of a 60-day note dated 17 July is 15 September PowerPoint presentation by Dr Anne Abraham, University of Western Sydney * Term of note 60 days July (31 – 17) 14 August 31 45 Maturity date: September 15 Calculating interest The interest rate specified on the note is an annual rate of interest Basic formula Examples PowerPoint presentation by Dr Anne Abraham, University of Western Sydney * Annual interest rate Face value of note x Time in terms of 1 year Interest x = Terms of Note Interest Computation face x rate x time = interest $ 730, 18%, 120 days $ 730 x 18% x 120/365 = $ 43.20 $1000, 15%, 6 mths $1000 x 15% x 6/12 = $ 75.00 $2000, 12%, 1 year $2000 x 12% x 1/1 = $240.00 PowerPoint presentation by Dr Anne Abraham, University of Western Sydney * Question 5 A note for $4118 was issued at 8.8% for 240 days. Calculate the interest amount. ? $241.59 $24 158.93 $86 972.16 $238.28 LO5 Recognising notes receivable The note receivable is recorded at its face value No interest revenue is reported when the note is accepted because the income recognition principle does not recognise income until earned Example PowerPoint presentation by Dr Anne Abraham, University of W