On December 31, 2020, Olaer Company received two P5,000,000 notes receivable from customers in exchanged for consulting services rendered. On both notes, interest is calculated on the outstanding principal balance at the annual rate of 4% and payable at maturity. The note from Nazareno Corporation, made under customary trade terms, is due on October 1, 2021 and the note from Mudag Corporation is due on December 31, 2025. The market interest rate for similar notes on December 31, 2020 was 10%. The compound interest factors to convert future value into present value at 10% follow: present value of 1 due in nine months, 0.93, and present value of 1 due in five years, 0.62. 1. At what amounts should these two notes receivable be reported in Nazareno’s December 31, 2020 statement of financial position? 2. At what amounts should these two notes receivable be reported in Mudag’s December 31, 2020 statement of financial position?
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Problem 10
On December 31, 2020, Olaer Company received two P5,000,000 notes receivable from customers in exchanged for consulting services rendered. On both notes, interest is calculated on the outstanding principal balance at the annual rate of 4% and payable at maturity. The note from Nazareno Corporation, made under customary trade terms, is due on October 1, 2021 and the note from Mudag Corporation is due on December 31, 2025. The market interest rate for similar notes on December 31, 2020 was 10%. The compound interest factors to convert future value into present value at 10% follow: present value of 1 due in nine months, 0.93, and present value of 1 due in five years, 0.62.
1. At what amounts should these two notes receivable be reported in Nazareno’s December 31, 2020 statement of financial position?
2. At what amounts should these two notes receivable be reported in Mudag’s December 31, 2020 statement of financial position?
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