Chapter 8 - Note Payable

Question 1

Under PFRS 9, paragraph 5.1.1, a note payable not designated at fair value through profit or loss shall be measured initially at _____.

Answer 1

Fair value minus transactions costs that are directly attributable to the issue of the note payable.

Question 2

If the note payable is irrevocable designated at fair value through profit or loss, the transaction costs are _____.

Answer 2

Expensed immediately

Question 3

The “fair value” of the note payable is equal to the _____ of the future cash payment to settle the note payable.

Answer 3

Present value

Question 4

The term “present value is the _____ of future cash outflow in settling the note payable using THE MARKET RATE OF INTEREST.

Answer 4

Discounted amount

Question 5

Under PFRS 9, Paragraph 5.3.1, after initial recognition, a note payable shall be measured:

Answer 5

A. At amortized cost using the effective interest method

B. At fair value through profit or loss if the note payable is designated irrevocably as measured at fair value through profit or loss

Question 6

The amortized cost of note payable is the amount at which the note payable is…

Answer 6

Measured initially minus principal repayment, plus or minus the cumulative amortization using the effective interest method of any difference between the initial carrying amount and maturity amount

Question 7

The difference between the face amount and present value of the note payable is amortized through…

Answer 7

Interest expense using the effective interest method

Question 8

The difference between the face amount and present value is either _____ or _____.

Answer 8

Discount or premium in the issue of note payable.

Question 9

When a note is issued solely for cash, the present value is equal to the _____.

Answer 9

Cash proceeds

Question 10

When a property or non-cash asset is acquired by issuing a promissory note which is interest bearing, the property or asset is recorded at the _____.

Answer 10

Purchase price.

The purchase price is reasonably assumed to be the present value of the note and therefore, the fair value of the property because the note issued is interest bearing.

Question 11

When a non-interest bearing note is issued for property, the property is recorded at the _____ of the propperty.

Answer 11

Cash price.

The cash price is assumed to be the present value of the note issued.

Question 12

The difference between the cash price and the face of the note issued represents the _____.

Answer 12

Imputed interest

Question 13

Based on the sound philosophy that no lender would part away with his money or property interest-free.

Answer 13

Imputed interest

Question 14

_____ represents the amount outstanding every year

Answer 14

Note payable

Question 15

Developed from the note payable outstanding every year.

Answer 15

Fraction

Question 16

Amortization

Answer 16

The amount of discount multiplied by the fraction developed

Question 17

_____ represents the annual installment

Answer 17

Payment

Question 18

_____ is equal to the preceding present value multiplied by the implied interest rate

Answer 18

Interest

Question 19

_____ is the portion of the payment after deducting interest representing principal.

Answer 19

Principal

Question 20

_____ is the balance of the preceding present value after deducting the principal payment.

Answer 20

Present value

Question 21

_____ is equal to the preceding present value multiplied by the implied interest rate.

Answer 21

Interest expense

Question 22

_____ is the balance minus the interest expense every year

Answer 22

Discount on note payable

Question 23

_____ is the preceding balance plus the interest expense every year.

Answer 23

Present value

Question 24

In accordance with PFRS 9, paragraph 4.2.2, at initial recognition, a note payable may be _____ irrevocably designated as _____.

Answer 24

At fair value through profit or loss.

Question 25

PFRS 9, paragraph 5.7.7, provides that the gain or loss on financial liability designated at fair value through profit or loss shall be accounted for as follows:

Answer 25

A. The change in fair value attributable to the CREDIT RISK is recognized in OTHER COMPREHENSIVE INCOME.

B. The remaining amount of the change in fair value is recognized in profit or loss

Question 26

The risk that the issuer of the liability would cause a financial loss to the other party by FAILING TO DISCHARGE THE OBLIGATION.

Answer 26

Credit risk

Credit risk does not include market risk such as interest risk, currency risk and price risk

Question 27

Application Guidance B5.7.9 provides that amount recognized in other comprehensive income resulting from change in fair value attributable to credit risk…

Answer 27

Shall not be subsequently transferred to profit or loss.

However, the cumulative gain or loss recognized may be transferred within equity.

Question 28

Under the fair value option, any transaction cost is recognized as _____.

Answer 28

Outright expense

There is no amortization of discount and premium on note payable. As a matter of fact, interest expense is recognized using the nominal or stated interest rate.

Question 29

An unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer.

Answer 29

Promissory note